Financial Adviser taken hostage

A group of German senior citizens took a financial advisor hostage that they blamed for causing them a loss of Euro 2.5 million. Now while we do not condone this behavior we do at least have some understanding for their frustration with the legal and regulatory system that all-too-often is slow moving and seems to favor those perpetrating investment frauds. It also seems only fair to use extra-judicial methods to get your money back when the governments of several countries seem to be willing to buy supposed bank details that were obtained illegally. (We stress the word supposed as they data may well have been created out of thin air in order to cash in on gullible tax authorities or to get even with people one dislikes).

Who stands behind failing Hedge Funds?

News that a number of - sometimes quite large - hedge funds are moving their operations to Switzerland or other locations (or are in the planning stage) in order to help their promoters or employees avoid taxes they deem to be excessive raises the question of the new host country's ability (or willingness) to stand behind the funds if they get into trouble. As the example of Iceland has shown, the size of the host country should stand in a reasonable relation to the size of the financial institutions that the regulators of the country have to supervise. In case of fraud or other malfeasance investors are well-advised to study the small print in the legislation regarding the regulatory structure of the host countries: Does regulation involve more than box-ticking and are investors able to claim compensation from a well-financed scheme in case of fraud or default?

Investors must not be too trusting

The news that the hedge fund manager John Meritwether is launching his third fund after having produced disastrous results with his first two funds has caused quite a stir. He may only be a good salesman but there still have to be some willing investors. But I suspect that not many REAL investors will sign up for Meriwethers's new fund, - it will be mostly 'advisers' who will put their 'clients' into the fund or their fund of funds. These intermediaries do not risk their own money but pocket juicy fees and real end investors should take care to take independent advice on the suitability of investments rather than be too trusting.

Runaway financier called Beano disappears

Another warning about investors relying too much on word-of-mouth and personality when making a decision to entrust their money to a financial advisor.

EU wants automatic exchange of Tax information

The EU develops more and more into a bureaucratic and undemocratic monster. The latest news is the 'demand' for an automatic exchange of tax information about foreign bank customers between member states. The EU was originally declared to be an economic union but the main instigators behind the 'project' always intended this stated purpose to be the Trojan horse that would allow their statist fantasies to be imposed piecemeal on an unsuspecting population. Napoleon and Hitler certainly would have been well-advised to try this approach rather than go the route of military conquest.
The raison d'etre of a state is that the citizens of that state enjoy full sovereignty over their affairs. Delegating powers to a foreign authority - especially one that they have no control over - is a grave violation of that principle. In the case of taxes there is no reason to inform any foreign government in any way. The whole purpose of putting money into another country is to remove it from the sticky fingers of the home government. The host country than in turn can tax the affected funds in any way it wishes. In the interest of tax harmony it should not favor foreign investors in any way and give them different terms than those offered to home country investors.
The home country of the funds concerned has in turn full authority to tax the money as long as it is in the country. If it so wishes it can create an 'Iron Curtain' and prevent money from leaving the country.
Just imagine what 'full information' would have meant in past periods: would the Dutch have 'informed' the corrupt French regime of Louis XIV about the investments that prudent French citizens had made in Amsterdam, or should the French government of the 1920s have informed the thuggish Communist government of the USSR?
Europe prospered BECAUSE there was no uniformity of government and religion had finally given way to a civil regime after centuries of struggle. How much longer can the control freaks in Brussels be allowed to destroy the fruits of these battles?

Can you eat absolute returns?

We recently stumbled across this interesting quote: 'You can eat absolute return; you can't eat relative return'. This was meant to mean that an investor should invest in funds that target an absolute (hopefully positive!) return rather than a fund that tries to outperform an index but ends up losing money at the same time. The problem is only that a fund manager may aim for a positive absolute return, - but what happens if he still manages to lose money? The investor gets no guarantee that there will not be any loss. So-called guaranteed funds offer this promise - but at a relatively steep cost (and they are only as safe as the bank/fund manager offering this guarantee).

Beware of higher fees

An interesting quote from an article in the Financial Times (October 5, 2009) illustrates the need for investors to be vigilant and prevent high management fees from pulling down their investment returns:

'...the wholesale shift (to into niche asset classes) is raising fears that investors are being clobbered with far higher fees, lining the pockets of the industry but potentially sharply reducing investment returns'.

Pitfalls of investing in the United States

News that the Madoff Trustee Picard may sue investors that have extracted positive returns from Bernie Madoff's Fund before the fund collapsed should be a warning sign for international investors. Whatever the merits of Picard's case against former investors - to subject yourself to such legal uncertainty is the last thing an investor would want to do. Just as no one in his right mind would cross a bridge where a warning sign reads: 'Warning - cross at your peril, there is a 1 in 1000 chance that the bridge will collapse while you cross it' so any sane investor should think twice before handing his savings to an investment manager based in the United States.

The Vanishing Hedge Fund

Or should it better be: the vanishing investor money? Forbes Magazine carries a story that underlines the danger of entrusting money to loosely-controlled investment managers without doing proper due diligence.

Hedge Fund Managers gaming performance yardsticks

The improved markets have also put some wind into the sails of the hedge fund industry. Some high-profile managers that crashed out during the market turbulence of the past two years and closed their funds are trying to launch new funds. This activity needs to be carefully monitored as it is possible that the managers want to get around the problem posed by so-called 'high water marks' in their old funds. They would have prevented managers to charge performance fees until the fund values reach their previous high point.