Shares of Fortress Investment Group, the first publicly traded U.S. hedge fund, went public on Thursday. This will likely herald the beginning of a flood of hedge funds looking to take advantage of public market liquidity, following their private equity cousins who have already dipped their toes into these waters.
The question remains, however, as to whether it makes sense for regular investors to get in on the action. The hedge fund world is a murky one with limited regulatory oversight, which should be reason enough to tread carefully. However, my bet is that publicly traded hedge funds (and private equity firms) will suffer from selection bias: the very best firms and fund managers will shun the public markets - choosing instead to invest their principals’ capital outside of the scrutiny of regulators and fickle public market investors. This will leave the “2nd tier” funds to tap the public markets, ultimately delivering lacklustre returns.
For now at least, I am steering clear.
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