The uncorporate approach to poor earnings

Cite this Article
Larry Ribstein, The uncorporate approach to poor earnings, Truth on the Market (October 25, 2011),

Yesterday’s WSJ reported that hedge funds are facing possible investor redemption demands:

As the year comes to a close, some investors say they are reviewing how their managers have performed through the recent volatility and are making decisions about whether to cash out of underperforming funds. Investors who want out before the end of the year in most cases need to give 45 or 60 days’ notice of their redemptions, setting up a critical period for managers who have suffered significant losses. * * *

Those funds’ managers “will be punished, and rightfully so,” said Vidak Radonjic of the Beryl Consulting Group LLC, which advises investors on hedge funds. * * *

“If they are having a bad year in that returns are down but can explain it in a way that convinces us they haven’t lost their discipline, then we might give them a pass,” said Sam Katzman, the chief investment officer of Constellation Wealth Advisors, which invests in hedge funds and has $4.5 billion under management. Constellation is likely to redeem from some managers who have underperformed this year, he said.

It might be a good idea if poorly performing corporations faced the same discipline. One might argue that it beats the vagaries and gaps in the business judgment rule and shareholder voting.

In fact, one did.