Posted By:
JamieAlso, a few couple other factors that would be a detriment to a hedge fund:
1.
For a hedge fund to justify investment in baseball cards, it needs investors who understand the value of baseball cards. If a hedge fund invested just a small percentage of its portfolio in cards, with the other parts in more traditional investment instruments such as stocks, bonds, real estate, etc., it could turn off potential clients who don't understand the card market. This would probably limit the fund to a 100% investment in at the very least collectibles, if not purely cards.
Furthermore, those who truly do understand the value of baseball cards are generally the people who already collect them. They would then be more likely to do the bidding on their own and own their own cards then have to deal with the massive fees associated with a hedge fund.
2.
Liquidity will be a major issue. Take, for instance, a hedge fund with four investors who each invest $5mn. So $20mn is invested in cards. Then, in a couple years, one investor wants to take their money out, so the hedge fund sells $5mn worth of cards. Then six months later, a new investor comes along and wants to invest $5mn. So the hedge fund is forced to buy back cards that are similar or the same as the ones it just sold. Obviously, the costs of all this turnover is tremendous. These factors lead me to believe that, while every collector would love to run a hedge fund that invests $30mn in baseball cards, it may never happen, or if it does, that it may be a pretty failed idea.
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All that said, if people can try to corner a rare violin market, they could do it with cards. Attempts to corner a market, however, can be very dangerous. Think the Hunt Brothers with silver back in the eighties... so if a hedge fund were to try it with cards, we could see exploding values for cards, followed by a crash like has never been seen before... ultimately, the problem with cornering a market is that once you become the seller, the market becomes less and less cornered and values crash.