Uncertainty regarding the timing of Federal Reserve interest rate hikes continues to churn as evidenced by increased market volatility. Federal Reserve Chair Janet Yellen has long insisted that any rate hike will be predicated on the nation’s unemployment figures and March yielded a paltry 126,000 new jobs. This is a dramatic 57 percent decrease from February’s figure of 295,000 leaving the unemployment rate unmoved at 5.5 percent.

Hedge fund performance, battered in large part by the unprecedented bull run the equities market has enjoyed over the past several years, risks continued pummeling if Yellen raises rates. Why? Because many funds have returned to long/short strategies in a quest for gains that rival those of the S&P 500, the unofficial (and unrealistic) performance benchmark to which many investors hold the hedge fund industry.

Partisan Politics and Economic Reality

The Board of Governors of the Federal Reserve System espouses the following: “political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.”

In the years following 1980, the United States has suffered 4 recessions (busts) under the watchful eye of the Federal Reserve’s Board of Governors. Does this mean the Board was the victim of undue political influence in its administration of economic policy? You decide.

The Clinton administration redefined unemployment by excluding so-called “discouraged” workers and this practice has persisted through Republican and Democrat administrations alike—for obvious reasons. Eliminating discouraged workers can reduce the unemployment rate by as much as fifty percent.

The Board of Governors uses these unemployment statistics in formulating economic policy, including decisions regarding interest rate increases. Considering this fact, can a credible argument be put forward that the Federal Reserve is not influenced by politics?

An examination of M2 reveals this measure of the money supply grew 58 percent during Clinton’s 8 years in office, around 88 percent during the Reagan years and a modest 14 percent during Bush 41’s tenure. Under the current administration, M2 has increased 43 percent, while Bush 44’s administration saw M2 increase by 67 percent. Only Clinton’s term in office was unmarred by recession suggesting that the boom/bust cycles continue in spite of the best efforts of the Federal Reserve. Increases in this measure of the money supply have been all over the map and few conclusions can be drawn from the statistics offered here.

However, at 5.5 percent, the unemployment rate has already dipped below the 5.83 percent rate the nation has averaged between 1948 and present making it difficult for Yellen to postpone an increase in the Fed Funds rate much beyond the next Board of Governors meeting unless the administration is prepared to acknowledge that the economic recovery remains weak.

Hedge Fund Jobs

Opportunities for employment in the hedge fund industry are likely to remain soft, at least for the short term. The entire financial sector is patiently (or not so patiently) waiting for the rate shoe to drop. For obvious reasons, those aspiring to join a hedge fund firm are more likely to be successful with firms employing long/short strategies. Therefore, those having skills and experience with equities will advance to the front of the queue.

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The term hedge fund is synonymous with sinister and secretive in the minds of many. However, this much maligned industry controls in excess of $3 trillion as represented by its collective assets under management and it continues to grow this impressive figure year-over-year.

Hedge funds have earned this unenviable public ire through no fault of their own. For decades, laws, regulations and regulators, have turned the otherwise benign hedge fund industry into the “Skull and Bones Society” of the financial sector. Like Yale’s “Skull and Bones Society”, there is factually nothing maleficent about the hedge fund industry. In truth, the worst thing to be said about the hedge fund industry is they have the most abysmal public relations apparatus on the planet. Hedge funds are the victims of the unintended consequences of the laws which regulate them.

A Force for Good

Millions of ordinary people around the globe benefit from hedge funds directly or indirectly. Pension funds, whose assets represent the hopes, dreams and futures of countless present and future retirees, routinely invest in hedge funds. Hedge funds preserve and grow this wealth, which subsequently ensures a comfortable retirement for untold millions.

Hedge funds invest in the stock of thousands of publicly traded companies which, in turn, provide employment opportunities, conduct research and development, and provide goods and services benefitting consumers and businesses the world over. Hedge funds also invest in business startups, real estate, government bonds, precious metals, currency and employ a host of other innovative investment strategies. In short, hedge funds are a crucial lubricant for the economic engine.

Hedge Fund Philanthropy

As with any industry, group or organization, hedge funds have a few bad apples and the media never passes up the opportunity for a sensational headline only reinforcing public perception that hedge funds are a nasty business conducted in secrecy by unsavory characters whose only motivation is greed.

Receiving significantly less publicity is the considerable charitable work of the global hedge fund industry. Examples include the Robin Hood Foundation, Children’s Investment Fund, Hedge Funds Care and a host of others. Additionally, individual hedge fund managers and founders donate millions to established charities. A recent example is William Ackman’s $10 million donation to TheDream.US, which funds education for immigrants defined by the Dream Act. Not surprisingly, the media is more focused on hedge fund earnings and the occasional bad apple than it is on charitable donations.

What About Jobs?

The important take-away is the hedge fund industry not only employs people directly but also provides employment opportunities to thousands  as a direct result of its day to day operations. A job in the hedge fund industry is a worthy goal. At some point, the industry should wake up and spend a few dollars on a public relations firm. The hedge fund industry deserves some high profile recognition for the millions donated to charitable causes. It is time the public was made aware that Warren Buffet and Bill Gates are not the only philanthropic souls in the financial community. Now there’s a job for someone!

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Signs Point to a Grand Year for Hedge Funds

March 23, 2015

Hedge fund detractors, never weary of bashing the hedge fund industry, will see 2015 shaping up to be a substantial source of frustration. Why? Because hedge funds are a galaxy away from being down and out. The number of hedge funds has grown from a post financial crisis low of 6,845 in 2009 to a […]

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By now, everyone has heard something of the theft allegations the SEC has leveled against New York hedge fund manager Moazzam “Mark” Malik. This thirty-three year-old is alleged to have stolen about $850,000 from 16 investors, foreign and domestic, beginning in 2011. New York’s Attorney General Eric Schneiderman has filed criminal charges against Mr. Malik, […]

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February 23, 2015

Read any compilation of the 50 top performing hedge fund managers and the absence of females on the list is glaring. Women are unquestionably active in the hedge fund industry. However, a woman has yet to be named to the top 50 … at least thus far. Few professions come to mind that sport a […]

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February 9, 2015

Not everyone is suited to the hedge fund industry. The intense competitiveness, high risk, and a secretive culture combine to create a work environment in which only persons with certain personality traits can survive and thrive. Generally speaking, hedge fund jobs fall into one of these three broad categories: 1) Analysts In many respects, analysts are the […]

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January 26, 2015

Hedge funds, and those who manage them, have been under relentless media attack for the past 5 years for failing to outperform the market. But, outperforming the market may not be the principal objective institutional investors and high net worth individuals (HNW) expect from an investment in hedge funds. If That Were True Alternative investing […]

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