Hedge funds losing their punt on Qantas

March 14th, 2007

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Back in November last year, in Qantas rose on takeover rumour, we mentioned that we ?marvelled at the foolhardiness of the speculators who, based on this gossip, rushed to buy Qantas shares.? Today, we saw this news article: Two hold-outs hold up buyout. As we all know by now, two of the largest institutional shareholders are holding out against selling Qantas to private equity. Consequently, it is likely that the Qantas buyout may fail.

Who are the losers in this?

In the above mentioned news article, it said that ?With hedge funds that have piled into Qantas growing increasingly desperate over the possibility the deal will collapse, it is understood another two groups of hedge funds are preparing to approach the two institutions.?

It should be no secret by now that we take a dim view on some of these ?hedge? funds, who do not hedge at all. Many of them are nothing more than vehicles for gamblers to punt on other peoples? money. As we said in Are you being ripped off by fund managers?,

Firstly, as with most managed fund, retail investors have to pay a performance fee regardless of the performance of the managed fund. We do not have any problems with that as long as we are confident in the quality, skills and experiences of the fund manager. But in this case, we are not that sure. Secondly, if the managed fund outperform, we will have to fork out additional fees in out-performance fees. But what if the fund underperforms? Does it pay retail investors any under-performance penalty in such an eventuality? Unfortunately, as with most managed funds, there is no such thing. Retail investors will have to pay regardless of the fund?s performance. They will pay more if the fund outperforms. But if the fund under-performs, retail investors bear all the consequences. As for the fund managers, they get all the rewards and none of the risks. Who cares if the fund manager turns out to be a dud or is plain unlucky? They still get paid.

Investors, beware!