We've been silently skeptical of claims that hedge funds will run out of ideas. The reason is that a hedge fund can technically do anything it wants. It doesn't have to do traditonal long-short arbitrage, or whatever is considered standard. While perhaps many of these hedge funds have ended up being nothing more than standard mutual funds with high management fees, to say that opportunities have run out seems akin to saying technological innovation is running out of new ideas.
Well, the WSJ points out that there's at least one "Hedge Fund" strategy which isn't overcrowded:
The community of short sellers is small, and little wonder: For the past 15 years or so, it's been tough to make money betting that stock prices will fall, given that the market was on a tear for much of that time.
In fact, out of more than 7,000 global hedge funds -- the private investing pools, mostly for the wealthy -- that are tracked by hedge-data provider Van Money Manager Research LLC, there are only 12 in its Van Global Hedge Fund Index that specialize in short selling.
12 out of 7,000... seems like there's a lot of room here. The article talks about a hedge fund called Rocker Partners, that amusingly enough, is being sued by Overstock.com (NSDQ:OSTK), who recurring readers may know is one of our Stalwart favorites.
Rocker Partners is currently being sued by online retailer Overstock.com Inc. in Superior Court of the State of California in Marin County. The suit alleges the firm told Gradient Analytics, an independent research outfit, to delay publication of negative research on Overstock.com so that Rocker could build up its short position. Overstock.com alleges the parties conspired to denigrate the company's business for profit.
This past summer, Patrick Byrne, Overstock.com's chief executive, featured a photo of Mr. Rocker in a letter to investors describing a cabal of short sellers and journalists he termed "the miscreant's ball," and referring to a conspiracy spearheaded by an unnamed "Sith Lord," referring to a group of menacing "Star Wars" characters.