According to Sam and Jim Commenting on things that irk us off, make us laugh out loud or just seem too weird too believe According to Sam and Jim: Seattle's Hedge Bet Too Risky

Friday, May 18, 2012

Seattle's Hedge Bet Too Risky

Sam and I are no math wizards. And we certainly don’t understand the tricky nuances of higher finance. But how can this hedge fund manager Chris Hansen afford to build Seattle a new $500 million basketball arena? Why does Seattle even want one? 

Whose money is Hansen using? He has promised Seattle and King County politicians that he and an investment group called ArenaCo. , which most likely includes several of his hedge fund investors -will ante up $290 million. The hedge fund Hansen manages is supposed to be worth a cool billion or two and he supposedly makes pretty good money managing it. 

We gleaned this information about hedge funds from Wikipedia: 

“Managers of hedge funds use particular trading strategies and instruments with the specific aim of reducing market risks to produce risk-adjusted returns, which are consistent with investors' desired level of risk. While “hedging” can be a way of reducing the risk of an investment, hedge funds, like all other investment types, are not immune to risk. (Our underline). According to a report by the Hennessee Group, hedge funds were approximately one-third less volatile than the S&P 500 between 1993 and 2010.

"Hedge fund managers (like Hansen) typically charge their funds both a management fee and a performance fee Management fees are calculated as a percentage of the fund's net asset value and typically range from 1% to 4% per annum, with 2% being standard. Management fees for hedge funds are designed to cover the operating costs of the manager, whereas the performance fee provides the manager's profits. The management fee from larger funds can generate a significant part of a manager's profits, and as a result some fees have been criticized by some public pension funds, such as CalPers, for being too high.

"The performance fee is typically 20% of the fund's profits during any year, though they range between 10% and 50%. Performance fees are intended to provide an incentive for a manager to generate profits. Performance fees have been criticized by Warren Buffett, who believes that because hedge funds share only the profits and not the losses, such fees create an incentive for high-risk investment management. 

According to the Associated Press, the City of Seattle and King County have agreed to ante up another $200 million or so to build an arena. The bulk of this public investment will be paid back through taxes and arena revenue. The city and the county will issue bonds to initially raise their portion of the funds needed. And this could work. Safeco Field has paid for itself hasn’t it? 

Still, Sam and I don’t think we would be too happy if our hedge fund manager - if we had one - used our money to build this arena when we already have Key Arena and the #@&% blanket-blank Supersonics left us high and dry to go play in Oklahoma. Of course, the guy who bought the Supes swore up and down that wouldn’t happen. 

Who’s to say a new team - which will most likely be losers for a while - will draw enough fans to pay for the new arena? And who’s to say that the new team will decide in 10 years that it doesn’t like the arena and want a new one or expensive remodeling? Sam and I think a new arena might be too risky an investment. Two bags of poop on a new basketball arena and another two bags of poop on anybody who thinks a new basketball team here should retain the Supersonics name - not after they pooped on us like they did! 

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