Friday, May 25, 2007

Hedge funds and private equity

There have been a number of articles recently on the outrageously high pay rates for hedge fund managers, their often paltry performance, and the huge amount of money flowing into the private equity industry at large.

I was at a securities conference recently with a large number of fund managers, and one story they told me was how low interest rates triggered this flood of money into their industry. If you're a pension fund, and you have an 8% real return/year bogey, then having 30% of your portfolio (bonds) go from 6% to 2% will have you scurrying around for yield wherever you can get it. I knew that low interest rates had distorted the housing market through mortgage financing, but did not consider that the same phenomenon was driving the growth in private equity.

The second major topic of conversation was there China buying Blackstone was a signal of a market top.

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