Blue River Asset Management's main municipal-bond hedge fund, which reportedly previously held more than $1 billion in assets, is liquidating after a harsh sell-off in the bond market, Reuters said.
For instance, before the 2005 hurricane season, a Bermuda cat-bond hedge fund called Nephila found a team of oceanographers in Rhode Island called Accurate Environmental Forecasting, whose forecasts of hurricane seasons had been surprisingly good.
The world's wealthiest people pulled their money out of equities and into bonds, hedge funds and property, and therefore avoided the excesses of the stock market crash.
They encourage investors, rather than spread their risks wisely or seek the best match for their future liabilities, to put their money into the most modish assets going, often just when they become overvalued whether tech stocks and dotcoms in the late 1990s or, now, corporate bonds, hedge funds and private-equity funds (see article).
It calculates that the after-tax proceeds from that and other stock sales, dividends and about $115m in salary since 1991 would be worth about $540m if the money was invested in a basket of stocks, bonds, hedge funds, commodities and cash.
Taxable bonds, hedge funds, real estate investment trusts and high-turnover equity strategies all fall into the tax-inefficient camp.
Risk cannot be assessed from an asset allocation chart that shows which parts of an endowment are invested in stocks, bonds, hedge funds, commodities, private equity and real estate.
Owning any type of foreign bonds hedges an individual investor's portfolio against a decline in the dollar and is especially useful if the portfolio has little exposure to other currencies through investments like foreign stocks.
"There were no options for cash-bond hedging, long-term holders or institutional managers," said Matt Tucker, head of fixed income at iShares, a unit of BlackRock.
