CDs and Hedge Funds Compete for Dollars
May 21, 2010
Individuals with upwards of $250,000 being held in certificates of deposit (CDs) and savings accounts are enjoying extremely meager returns on that investment, with one year CD rates hovering below 2 percent. Meanwhile, banks are holding large inventories of foreclosed homes, with millions more foreclosures there for the taking.
In this environment, a convincing pitch from a hedge fund manager might go like this--invest $100,000 with me and you can get 7 percent back per year; we're going to buy a dozen well-placed commercial buildings.
CD Rates, Savings Rates, and Risk Appetite
Judging by the doubled stock market over the past year, investors have regained a semblance of so-called "risk appetite." But what is risk?
According to an article from iStockAnalyst, that's the question new, post-collapse hedge funds are asking investors. Is it risky to buy distressed real estate at rock bottom prices? Is it risky to buy businesses that have potential, but are being dreadfully mismanaged?
With banks that need to unload non-performing assets of all types, from foreclosed homes to charged-off credit card debt, hedge fund guys are in hog heaven right now, and want to know who wants in at the trough.
Hedge Fund Managers of Today Very Important to Bank Rates of the Future
The only way CD rates and other savings rates will re-reach a rewarding level is if the banks can unload, without spooking the market, vast amounts of questionable assets.
Hedge funds are tasked with the job of picking through that wreckage, finding the gems, shining them up, and returning the profits to their partners. The quicker that hedge funds buy these junk assets, the quicker the banks might return to wanting your money, instead of merely housing it at no cost.
