Thursday, October 13, 2005

Shut Up and Invest

HedgeWorld has devoted its entire September 2005 issue of Accredited Investor Magazine to hedge fund philanthropy. HedgeWorld writes that hedge fund managers are spending an increasing amount of their time and money on doing good deeds.

Although good public relations might come from philanthropy if the manager lets everyone know about it, clearly there is an opportunity cost associated with it. The time and money a manager spends on philanthropy takes away from the time and money he would spend making money for his investors. I would rather my hedge fund manager spend all of his time and money making money for me so that I could donate to whom I please. I would hate to invest in a George Soros fund, for example, only to have him donate my forgone investment returns to another wasteful project like

The analogy to this is transfer payments from federal and state governments. Governments tax us and decide which of the underprivileged are eligible for their welfare programs, which retirees are eligible for their social security programs, and which patients are eligible for their Medicare programs. Because paperwork gets pushed around by literally hundreds-of-thousands of bureaucrats, much of the money gets sucked down a giant drain, and that is before factoring in the lost productivity because private-sector providers of these services, such as doctors who take Medicare, have to adhere to monolithic, uncompetitive, bureaucratic standards. Virtually all of us would have been much better off if the government let us keep these payments and let us decide for ourselves. The few that are incapable of making decisions would easily be cared for by private charities that would be awash with funds because of a lower tax burden on donors.


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