You may become confused regarding the value of investing in hedge funds by reading various academic studies on them. They often offer conflicting results and there appears to be more and more of them.
Richard Oberuc, president of the Foundation for Managed Derivatives Research (FMDR), which gives grants for research on the use of derivative instruments, says it is best to look at as much research as possible. “That is what we are participating in through the foundation. Trying to sponsor as much good academic research as possible so that the managed derivatives community has the kind of background that has been out there for mutual funds and money managers,” Oberuc says.
Oberuc adds the typical research grant is for $15,000 and insists that the FMDR-sponsored research is independent despite it being established by the Managed Funds Association. “If you look at the research papers that we have sponsored, you’ll see that there is a wide range of topics and some very thoughtful academics have worked on this.”
That is not always the case with some research, Oberuc says. “There are some academics who do not believe in hedge funds, just as you will find some academics who do not believe in managed futures or commodities. They have some bias against it and the result of their research is going to display that bias. It is a little hard if you are an investor trying to figure it out, to sort out who is guilty of that kind of bias. That is why you have to look at the preponderance of evidence over a wide amount of research,” he says.
NO SETTLEMENT YET
When the Commodity Futures Trading Commission (CFTC) reaches a settlement with the target of an enforcement action, that usually ends the action. But in the case of Philadelphia Alternative Asset Management (PAAM) — an altogether unusual case — U.S. District Court Judge Michael Baylson did not accept the proposed consent order and has asked the parties to go back and add a specific requirement to have former PAAM president Paul Eustace make himself available for testimony. Gretchen Lowe, associate director in the division of enforcement at the CFTC, says the judge wants a very specific clause. “Mr. Eustace is a resident of Canada so the judge expressed concerns in wanting to have him agree to appear in Philadelphia to provide testimony as necessary.”
The consent order, which was agreed to in April, requires Eustace to pay restitution to PAAM investors in an amount to be determined. “We are awaiting the receiver to finish his work in chasing assets,” Lowe says.