I recently attended a hedge fund conference. In a sign of the times the format was a half day and presented in an austere, no frills environment…coincidentally the same room where I was married but that is a subject for another day.

The conference was positioned as off-the- record so to protect privacy I provide a selection of unattributed comments that I thought noteworthy.  

Despite the conviction of the panelists what became clear is that other than the management fee going to 1.5%…in some cases…and liquidity terms more closing matching the asset class…nobody seems to know what the future holds.

On investor disgust:

“It was not the performance that disapointed investors – other than the fraud, it was the combination of gates, side pockets and the call option nature of the compensation.”

On small start up hedge funds:

“I don’t know how you can launch in this environment.  the amount of due diligence is going up and the size of the checks are going down. I see a barbeling in the industry where some small niche opportunities will survive and the multi-billion will win but not the mid-tier.”

On the current happy talk in the markets:

“Has anyone learned anything? the banks are rushing to pay back the  TARP yet there doesn’t appear to be any serious effort to make significant reform.”

“The US government has a $2.2 trillion deficit – where is the money going to come from?”

“If the emerging markets have had a 50% gain in an 8 week period, the probability  of another 25% increase is less likely than a 25% fall.”

“At some point China will refuse to lend. The move is to look at countries that are effectively going it alone – e.g. Brazil, India…”

On Regulation:

“The next big bubble is regulation.  The point of a hedge fund is to release a manager from constraints.  that is the point – freedom from the rules of active management. So managers who feel constrained in the US will move… and there will be more welcoming domiciles.”

“the NY State pay to play rules may lead to an interesting outcome where hedge funds need to become a broker dealer to sell themselves”

“The Fed has 3500 economists and 12 bloombergs…2 in Bernanke’s office. How can you make decisions if you don’t have real-time information.”

On who’s to blame:

“Greenspan is the villain, Paulson is an idiot”

On high-water marks:

“70% of hedge funds lost money and of those only 8% are above their high water mark”

On Private Equity:

“Generally 15-30% of foundation and endowment portfolios are in private equity and real assets. If you add the committed capital calls, you get closer to 20-40%. If everything else is down there simply isn’t cash to put into new hedge fund opportunities. You need the distributions from the real assets or private equity investments.”

“We’ve learned that private equity is not bullet proof”

“Learned that there is no underlying logic to the mega-lbo private equity deals. Pay someone 2/20 to pay a premium for a public company. The better option clearly is to hold the public company directly.”

Finally – this intreprid conference attendee vows to ask a question at every event I attend so I asked the investor participants how their allocation of time has changed this year vs. last or the year before.  

Foundation: “I have hired a COO to take care of the administrative work and I have less time for managers”

Endowment: “Our auditors have been here for 6 months. Last year it was for 3 weeks. I have hired a COO – a CIO can’t do it all anymore.”

FOF: “Spending time really understanding our funds and subjecting them to another layer of diligence.”

Investors are busy. Help them out!