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Exploiting Market Inefficiencies
By J. Wayne Firebaugh CPA, CFP® CMP™
By Dr. David E. Marcinko MBA, CMP™
Source: www.HealthcareFinancials.com
This class of investments seeks to exploit market inefficiencies and generate positive returns regardless of broader market performance. Often, investments in this class are made through the use of hedge funds. Hedge funds will often employ leverage, short-selling, and arbitrage to take advantage of pricing distortions in their targeted strategy area.
Relation to Healthcare Endowments
When investing an endowment’s assets in this category, the physician director or money manager should be aware of fee structures that commonly include performance-related incentive fees, hurdle rates, and claw-back clauses. The endowment managers should also remember that these types of investments generally have much less transparency than other asset classes with which they may be more familiar.
Assessment
Finally, since many of these investments are offered only to accredited investors, the physician or investment manager is often free to pursue much more aggressive strategies than would otherwise be pursued for retail or lay customers.
Conclusion
But, can we [anyone] exploit market inefficiencies? Is the market efficient or inefficient? What about Modern Portfolio Theory [MPT] or the Arbitrage Pricing Model? Did we really learn anything from the market crash of 2008?
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Filed under: Investing, Portfolio Management | Tagged: Alternative Investments, Arbitrage Pricing Model, david marcinko, efficient market hypothesis, EMH, hedge funds, Modern Portfolio Theory, Wayne Firebaugh | Leave a comment »
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