Submerged, from Chris Humbert

December 13, 2006 |

Feeling particularly flush in 2000, and ready to invest in what had already done well for me, I put a substantial amount into a local tech-oriented hedge fund. I knew the general partner because he had previously made a small but profitable private equity investment in my own company, and of course his returns over the previous several years were pretty good.

For the next three years the fund lost money, to the point that it was worth about 50% of what I invested. Then the partner had the gall to call me and tell me he wanted to reset the high-water mark. The rationale was that he couldn’t attract good traders/partners if they had such a high hurdle to overcome before making the big bucks. He likened it to the practice of re-pricing stock options, which was happening all over Silicon Valley at the time.

I withdrew my money immediately. I probably should have done it earlier, but am embarrassed to admit that it was one of my better-performing investments at the time…


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