(Originally posted on August 12th 2009)
My friend Sunil Chandy made the following statement “A good song is one where the meaning of words and the meaning of the music meet and enrich each other.” Sunil is a gifted musician and a gem of a guy. The wisdom and simplicity of the quote is filled with sublime beauty.
I have from time to time described myself as a singer who plays the guitar and not a guitarist who sings. A year back I used to joke that if I had to lose my job then at least I had some chance of earning an income by busking in the underground.Music to me should be pure. There should be as few physical barriers between the audience and the musician. A simple stringed or percussion instrument and an audience. The best songs are those that are played with the three major chords and at the most using the two related minors. However this by no means makes a song less complex or interesting.
Investments should follow a similar philosophy. If a hedge fund is supposed to be a long/short equity fund then it should invest in purely liquid equities or have the option of placing cash. Having portions of the fund in shares of unlisted companies should not be part of the portfolio although the manager will have such a clause in the Private Placement Memorandum.
Transparency in hedge funds is needed. However not to the extent that each and every deal should be made available to the public. If that had to happen then there would be no money to be made. Huge profits can be made only in environments where positive and negative returns results in a good volatility. A good hedge fund is one that comes as close as possible to providing absolute returns year after year just like a good song is one that touches you no matter when you listen to it.