GAIM Day 2

Here's todays report (from my notes). Heard today:

Bonds don't have tail events (c.f. Enron)

Go for brick (brazil, russia, india, china) - cynics say brick is finished.

Hedge fund replication is a crock.

Need to know how to pay for alpha/exotic beta. Don't pay for garden variety beta.

US stocks and bonds vastly overvalued.

A few niches FOFs (funds of funds) are looking at: reinsurance, "bricks" (see above), commodities, private equity, direct lending, the activists.

Alpha, alpha, alpha - catch it if you can.

Pensions and endowments - looking to hedge funds for alpha.

Risk budgeting is replacing asset allocation.

Decompse your risk.

Spain is dipping its toes into hedge funds - seems not really ready yet - unions are big market drivers.

The new Fair Value measurement rules - hedge fund folks you need to learn what Level 1, 2 and 3 assets are. Avoid Level 3 if you can. Effective for fiscal years beginning after 11/15/2007.

Structured credit - incomprehensible.

New fund looking for seed capital? If you can't miss and will let us run you we might be able to do business.

The rouble is going through the roof vs. don't trust anything in Russia.

And now a few editorial comments:

Not to knock it - lots of smart people - but invariably the best money managers go to the big big money investors.

Thus, your average Joe millionaire (soon to be Joe $2.5M sans house) probably will in fact do best being extremely cautious in dealing with hedge funds.

The big investors ($1B and up) are maybe putting up to 15% of their portfolios into this and they are getting the cream of the managers. There are niches for small investors of course  (outside of FOFs) but it's going to be in very risky stuff with unproven managers.

However, if you start small - 5% of your portfolio (this is $125K if you are worth $2.5M liquid) in, for example, a good FOF you just might get some alpha or at least exotic beta for your management fee.

Caveat: I am not an investment adviser. This is a free non-professional (as to investment advice) blog. I hope to entertain my readers and pass along some of what I heard today. Any enlightenment given is purely coincidental. My opinions in today's blog are purely those of a private investor.