Posted By:
Corey R. ShanusI think it will be very difficult for hedge funds to generate high returns, regardless who they hire to advise them, for two main reasons. (1) High transactions costs when selling items -- even assuming the SP is negotiated down to zero, the typical auction house has a BP of 15%-20%; (2) when making their acquisitions they will be competing with collectors who will be looking to buy items based on their enjoyment of owning it, regardless how good an investment it is. Or to put it another way, a hedge fund's utility curve puts zero value on the pleasures of ownership. Collectors' utility curves, in contrast, typically put high values on ownership pleasures, which makes an item much more valuable to a collector than to a fund. The fund therefore will find it very difficult to outbid the collector and still garner high returns.