Catching up on some recent news: at the end of Jan 2009, Dutch merchant bank Kempen & Co. announced it will discontinue its property hedge fund.
Does this make sense? Yes and no.
Why would you want to have a hedge fund specialising in property shares in the first place? A hedge fund, by definition, takes short positions in shares as well as long positions. Shorting property shares has become too expensive nowadays. And not only that: why would someone short a stock that provides a dividend yield of 8%? So, yes, it makes sense to stop these operations, cut your losses short and count your blessings.
On the other hand, it doesn’t make so much sense if you feel property is a good investment in the long run and you are able to buy propertyshares at huge discounts. Provided that such fund would have patient investors, sharing your views on property in the long run.
Funds with a long/short strategy should at least follow premium/discount patterns. Short shares that trade at premiums and buy shares that trade at discounts. These hedge fund managers would have found themselves shorting stock at the beginning of 2008 and start buying right about now.
Sure, with knowlegde of hindsight, everyone’s a winner. And my long bias during the better half of 2008 didn’t bring me much, must say.
Alternative hedge funds are still relatively popular in this terrible market environment. If a manager is focused on something non-correlated, such as real estate, it might be a good time for the manager to find out how to start a hedge fund.
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