To list or not to list? Manager IPOs shown to hurt hedge fund returns

first_imgHedge funds run by listed companies underperform those run by privately owned firms, according to academic research.Listed firms gained $3.5m (€3.3m) more in revenue than privately owned companies and gained more assets under management (AUM), despite their underperformance, reported Lin Sun and Melvyn Teo of Singapore Management University’s Lee Kong Chian School of Business.In the five years after a group’s initial public offering (IPO), risk-adjusted performance of funds fell by 13.7% a year on average, the researchers wrote in their paper, ‘The Pitfalls of Going Public: New Evidence from Hedge Funds’.Listed-manager funds underperformed their unlisted peers by 2.9% a year. The pair analysed more than 16,000 existing and defunct hedge funds, taking performance and asset data between January 1994 and December 2013.Over the period, listed companies increased their market share from 4% of total assets to more than 16%, Sun and Teo’s data illustrated.Sun and Teo said: “We show that hedge funds managed by listed asset management firms consistently underperform funds managed by their unlisted competitors. The results are driven by agency problems at fund management companies.”Newly listed firms tend to “aggressively raise capital” through new product launches, the authors wrote.The best funds for raising capital – typically those with high liquidity – were also those most likely to underperform relative to similar products run by unlisted companies.Sun and Teo argued that investors in funds run by listed companies were trading performance for “the comfort of lower operational risk”.“Typically, a privately held hedge fund firm is controlled by its founders … who also invest a substantial percentage of their net worth in the funds managed by the firm – hence the tight link between ownership, control and investment capital,” they added.“Post-IPO, this link is broken as the founders of the firm sell out to new shareholders who neither invest alongside the limited partners nor manage the hedge funds run by the firm.”Read Sun and Teo’s paper here.last_img read more

‘Legislature Must Be Audited’

first_imgDr. Bhofal Chambers of CDC is poised to become Speaker of the 54th Legislature. Maryland County Representative, Bhofal Chambers, wants the General Auditing Commission (GAC) to audit the National Legislature in order to account for resources allotted to that august body over the years.The intent, Dr. Chambers said, is to provide a high degree of transparency and accountability in the operations of the first branch of the Liberian government.According to him, since the inception of the Ellen Johnson Sirleaf-led government, no agencies have been able to conduct audits on money and goods used by the Legislature. As such, “it is pivotal that a holistic audit is carried out in order to change public perception about lawmakers [and the Capitol Building].”He maintained that auditing the Legislature would encourage other spending agencies of government to conform to the tendency of being accountable to the state.The Maryland County lawmaker furthered that in an effort to achieve this goal, “both chambers of the Legislature must provide budget performance reports detailing spending over the years.”He noted that a robust Legislature should present a ‘legislative performance report’ like other ministries and agencies do before discussing the 2014/2015 National Budget.“We need to have an inventory of all the things that come to the Legislature to give us an understanding of where we are and what to do next,” Dr. Chambers indicated.He made the assertions recently when a media organization bestowed an honour on him for his outstanding advocacy in the Legislature.Receiving the honour, Dr. Chambers indicated that Liberians’ situation remains deplorable; with government providing no living quarters for low income earners.Chambers: “Liberia has many resources but our citizens are lacking in many things.It’s not God’s will for these things to happen but the poor management of the vast resources here remains our challenge.We have problems with leadership, and until we can change that; our advocacy will continue until the right thing is done for the good of our people.”Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)last_img read more