Reggie Hammond Capital Partners LP

Alan Murray makes the case that hedge funds are the new sheriffs in town, policing corporate boardrooms and keeping executive management on the straight and narrow. In general, I think Mr. Murray gets the big picture right, although oddly he feels the need to get a few potshots in at the end. Unfortunately, his potshots reveal that he doesn't completely know what he is talking about.

He states that "hedge funds are moving to 'lock up' their investments for a minimum of two years, making it impossible for investors to pull out if they don't like the way things are going." He's right that hedge funds are doing this, but only because it is the only loophole that the SEC made available to to hedge funds that want to avoid the onerous burden of SEC registration. Potential investors hate the two year lockup and imposing one severely hampers a hedge fund's marketability. So hedge funds are forced to choose between submitting to tens of thousands of dollars in compliance costs and intrusive inspections or inhibiting their own marketability. Cash is real, so it is no surprise that some choose to avoid spending the dough and roll the dice with their marketability. Murray claims that hedge funds "relish" the two year lockup as it protects us from swings in sentiment. Well yeah, but it also protects us from getting any sentiment whatsoever. Removing the risk that business will go south is not a win if you have no business. It is hardly a move that the hedge fund community relishes.

Also, Murray thinks he's found some irony. "Hedge funds thrive by poring over the records public companies are required to file with the government, even as they resist filing anything themselves" he states proudly. First, hedge funds file things with the government all the time, like SC-13Ds. More importantly though, is that these companies sell stock to the public via public markets, making their securities available to any Joe Blow with a brokerage account without him having to know diddly, so they are required to file things that say who they are and what they do. Hedge funds don't sell via public markets so we don't have to submit name rank and serial number to the public's information clearinghouse, known as the SEC. Nonetheless, hedge funds have to explain who we are and what we do to investors too, and we also have to do it through 50+ page legal documents that cost thousands to produce. The fact that these documents aren't sent to a centralized government clearinghouse is irrelevant. Hedge funds are as transparent to their owners, arguably more, than IBM or Chevron are to theirs.

In another clue that Murray doesn't have the firmest grasp of the big picture, he states that money from "less sophisticated investors" such as "public workers' pension funds" is finding its way into hedge funds. Does he not know that cops and teachers are not making these decisions, that dedicated investment professionals hired by the pension plan are?

So Murray's potshots are not just unwarranted but wrong. But it is understandable. When the late Bob Bartley was asked to explain some apparent contradiction between his views and what was contained in the news pages of the WSJ, he would say "we are a newspaper and like any newspaper we have people in Washington, so it's inevitable that some silly notions work themselves into the paper."