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Norb Vonnegut
Norb Vonnegut
"If anybody can turn international finance and hedge funds into a riveting thriller, it's Norb Vonnegut." (Jeffery Deaver) When the money talks…I listen. And I write about what happens behind the scenes in the bare-knuckled world of finance. THE TRUST, THE GODS OF GREENWICH, TOP PRODUCER.


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Posted in Business / Finance / Investing

Modern Portfoolio Theory II

Oct. 23, 2009 10:07 am
Keywords: None

What can investors do when their hedge funds implode?

The Galleon scandal puts a fine point on this question. In the wake of an alleged insider trading scandal, Galleon is closing the doors of its operation which managed $3.7 billion in assets as of Friday last week.

That's one report.

Now the organization, which has received $1.3 billion in redemption requests, is exploring the sale of an Asian unit. The masts are broken and the ship is taking on water.

Galleon is searching for the best way to exit—both for employees and the funds it manages. Investors are questioning the market impact of liquidation.

How do we get our money out of this mess?

The Wall Street Journal highlighted their worries in an article entitled, Galleon's Holdings Could Face Some Pressure As Funds Wind Down.

Galleon, which Friday saw its founder Raj Rajaratnam and five other people arrested on charges of insider trading, said Wednesday it is winding down all its hedge funds.

"We can only hope Galleon will be responsible in how it puts shares into the market," Canaccord Adams analyst George Farmer said, adding he hopes the hedge fund will sell shares gradually.

"At the end of the day, Galleon is still a professional fund, and it should know how to liquidate positions," he said.

Maybe. Maybe not.

I'm not an investor in Galleon. But if I were, I'd ask the fund to wire my pro-rata share of the portfoolio. The allegations of insider trading don't make the underlying securities bad. And I'd prefer that one of my other money managers—stable, no SEC investigations, employees focused on their jobs and not on finding new ones—take responsibility for holding or selling the positions.

What? Galleon won't return individual securities to investors?

Maybe the government should take a closer look. I'd be happy with legislation that forces hedge funds to offer a choice when investors exit: cash from the redemption of securities or the underlying securities themselves.

Hey, it's our money.

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