The recent push by hedge funds in the US and abroad into the public capital markets—Citadel's debt offering and Fortress's IPO being the two best known here in the US—has some wondering if we're seeing some sort of dot-com-ish bubble in alternative investments. Others, including a few of our commenters, have wondered if it even makes sense to think in terms of a "hedge fund bubble" since the term hedge fund is used to describe such a wide variety of managed investments.
But there certainly is something going on. A lot of capital that might be expected to gravitate toward hedge funds has gone elsewhere in the past year, and hedge fund managers are finding new ways to raise capital. The persistent and growing threat of state, federal or even global hedge fund regulation—which would certainly increase the cost of doing business as a hedge fund manager and may make it more difficult to employ certain strategies that have helped some hedge funds capture their legendary gains—may be dampening the desire of some wealthy individuals and institutions to invest in hedge funds. And some observers have indicated that the activities of hedge funds over the past twenty years may have actually helped correct some of the irrationalities of the commodity and capital markets that made room for the abnormal returns the hedge fund kings.
It seems especially strange that hedge funds are pushing into public capital markets at the same time that private equity has become such a big player. With so many public companies going private, why are these once private investment pools going public? Larry Ribstein, in a very short item, takes a stab at answering all these questions.
Because I think private equity is part of a fundamental shift away from the public corporation, I don't see private equity and hedge funds folding into the night. Maybe the public corporation will be replaced by the public uncorporation, giant umbrella LLCs like Fortress that manage large hedge funds that run slim little operating companies, like the future versions of GM and Ford.
In short, the future of public capital markets may be the exchange of shares in private equity firms, hedge fund managers and investment banks, which will, in turn, own and indirectly manage operating companies. It seems odd to say it, but we may be headed toward a world of further intermediation between the investing public and the profit producing company.
Are hedge funds over? [Ideoblog]