Barton Biggs Talks Hedge Fund Mythology

Are funds of funds appropriate for investors?

For nonprofessional, moderately wealthy investors, the funds of funds make all the sense in the world. But should a major institution with the resources to the analysis use funds of funds? Probably not. It all depends on how sophisticated they are and if they have the capability of understanding 10 or 20 different hedge funds.

How does a hedge fund die?

In 99.9% of the cases, hedge funds die a slow, lingering death. That's due to either a negative performance, or a spotty performance, both up and down over a period of years. Clients of hedge funds have very little patience for indifferent performance.

What do you think of the new Securities and Exchange Commission rule?

I see it as a good thing for the industry because that basic registration is not that onerous. It does require hedge funds to abide by some generally reasonable conflict-of-interest and record-keeping rules, and it will keep out of the industry a number of small promotional hedge funds run by people that are really not qualified.