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Today In Our Wall Street Betters


I never get tired of reading stories about the douche who took over Sears:

Under the direction of the hedge-fund moneyman Edward S. Lampert, Sears has borrowed to the hilt. Many of its most valuable assets have been sold off. Its stores have been starved for cash and attention. An early shift in the organizational structure designed to create competition among store departments — a strategy used by some hedge funds to allocate company resources — instead led to infighting.

It was all done in search of a profit that, for Mr. Lampert and his investors, has not materialized.


Besides the share buybacks, one of the earliest moves by Mr. Lampert was to decentralize the managements of Sears and Kmart, effectively creating more than three dozen silos of business lines such as men’s wear, shoes and home furnishings, each with its own management team and board of directors.

It is similar to a strategy sometimes used at hedge funds, where different teams compete with one another for scarce company resources. At Sears, though, the design led to infighting between divisions for everything from space in the weekly advertising circulars to floor shelving.

One former executive described how the clashes played out in Sears showrooms, whether in the jewelry or the tools departments. Managers would tell their sales staff not to help customers in adjacent sections, even if someone asked for help. Mr. Lampert would praise policies like these, said the executive, who asked not to be named because he still works in retail.

It’s shocking that this DISRUPTIVE strategy didn’t work.

Meanwhile, the news cycle has moved on, but this Yglesias piece on the Mooch is really good (although obviously the best part is the subhead.) Like Trump, he’s shown that there are a remarkable number of rich suckers out there:

Mooch is referred to loosely as a Wall Street guy, a hedge fund guy, or even a financier. But his company, SkyBridge Capital, is not an investment firm in a conventional sense. Instead, it markets what are known as “funds of funds” — pools of money that are then invested in various different hedge funds. No actual management of an investment fund is involved.

This business model, however, has a fundamental problem. Once you account for the management fees, most hedge funds offer much lower returns than simple index fund investing. That’s not to necessarily say that nobody out there is smart enough (or lucky enough) to beat the market. But it’s clearly the case that on average, hedge fund managers are not beating the market, especially when you take into account the fees they charge.

A fund of funds, almost by definition, is not getting you into the best hedge fund in the world. It’s getting you into something resembling an average of hedge funds — i.e., a bad investment — and then it’s charging fees on top of that. A rotten deal.

The vast majority of hedge funds are a terrible investment that charge huge feeds for performance that is likely to be worse than a low-churn index fund. But a fund of funds is far worse, because any black swan hedge fund that actually does outperform the market will get swamped by the other funds that underperform the S&P 500. Well, if you’re going to con anybody I guess it’s good that it’s dumb rich people.

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