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Monday, 27 July 2009

As clear as Mudd

I shall resist the temptation to crop any more puns about the name and position of Daniel Mudd, new chief executive of Fortress Investment and former chief executive of Fannie Mae, I can't help raising an eyebrow at his suggestion that his hedge fund should go into the market to buy a few banks, insurance companies and ... other hedge funds.

OK, Mr Mudd may have his reasons, but hedge fund managers will tell you that their babies are almost all pure α with scarcely a hint of β, pure return and the best you will find. According to the hedge fund market, there is little to be gained from risk diversification? So why would it make sense for me to invest in Mr Mudd's hedge fund?

Because he knows hedge fund managers who can earn more money for their clients than he can? Then why wouldn't I simply place my money with them?

Because he can more money for those clients than the current hedge fund managers? It would be cheaper to advertise to win those clients (or other new business) than it would be to pay a premium to buy the fund.

Still somebody must have thought he knew what he was doing when he was at Fannie Mae. Mudd collected more than $80 million in his time there although he was dismissed as CEO when FHFA stepped in as conservator on September 7, 2008. The US government told him to forget about a severance package, because he was getting Sweet Fannie Adams and his name was Mudd. Oh, I did it.

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