Barry Ritholtz writes:  Hedge funds have done well in 2014, but not along a normal Gaussain distribution along smooth bell curves. It has been feast or famine.  Darwin’s laws of the jungle apply to capital as well: The big get bigger, while the weak atrophy and eventually die out. The elite firms dominate money raising.

Why are investors attraced to hedge funds in the first place?  The lottery-like nature of the next high alpha?  Selecting the emerging managers of the next 10 years has proven to be impossible.

CALPERs of course dropped hedge funds.  Yale has done very well under David Swensen.  Yale was in first, the alpha generation high, the costs reasonable and valuations modest.

Ritholtz sees more feast or famine. A handful of firms will capture most of the alpha and fresh assets. More firms will shut their doors. Perhaps a few more endowments and pension funds will re-evaluate their hedge-fund investments. Don’t be surprised if venture-capital and private-equity fund are next to undergo a similar examination.

Saudi Arabia and its fellows in the Organization of the Petroleum Exporting Countries are stressed out oil giants. The producers of oil from shale are driving down the world price of crude by flooding the market with millions of barrels of new oil each day. At $64 a barrel, Brent crude is down 44 percent since June.  All OPEC can do is gape at the falling price of crude and contemplate the destruction of their cartel at the hands of the Americans, whom they thought they had supplanted for good 40 years ago. Energy economist Philip Verleger says shale is to OPEC what the Apple II (AAPL) was to the IBM (IBM) mainframe.

Theories as to why OPEC didn’t reduce quotas at its meeting in Vienna on Nov. 27 are as cheap and abundant as crude in North Dakota. One holds that the Sunnis of Saudi Arabia want to hurt the Shiites of Iran, who need high-priced oil to finance their government. Another, expressed by Russian President Vladimir Putin, is that the whole thing is a conspiracy to undermine Russia, the world’s biggest oil producer. Yet another is that the Saudis hope to drive oil prices below where it makes sense for American shale producers to invest in new production. But shale producers have lowered their costs so much that in key fields they can make profits at $50 to $70 a barrel. That’s above core OPEC members’ exploration and production costs but below what many need to cover their government spending. “If my calculations are correct, this will go down as one of the worst commodity trading decisions ever,” Wilbur Ross, billionaire investor and chairman of WL Ross (IVZ), wrote in an e-mail.

In fact, prices are being forced down not by any action (or inaction) of the Saudis but by the American shale producers, who are simply producing all the oil they can to maximize their profits.
With apologies to Ebinger, the shale producers don’t need to be sophisticates. Each operator is so small, it can increase production without pushing down the market price. That makes them price “takers,” not price setters. And because shale wells are short-lived, producers don’t have to plan far ahead, says Karr Ingham, a petroleum economist in Amarillo, Texas. Singly the shale busters are nothing. Collectively, their breakneck production is breaking OPEC’s neck. This is the remorseless, leaderless free market at work.

OPEC used to be something to reckon with. For a brief period in the 1970s its influence was so strong, it could set prices to the penny for scores of crudes. . Its power has waned considerably, but until this year Saudi Arabia could still be counted on to cut output for the good of the cartel when gluts emerged. The Saudis’ refusal last month to take one for the team is historic.

Rod Hunter writes: When India’s prime minister, Narendra Modi, was on the campaign trail, he promised to improve the way the country is governed. Since taking office in May, he has strived to deliver. Recently, he declared that he wants to boost India’s position in the World Bank’s “Doing Business” survey, which assesses the regulatory climate in 189 countries. Modi’s goal is to lift India into the top 50 – a bold ambition given that the country currently sits at 142.

Cutting bureaucratic red tape can help foster a culture of entrepreneurship and dynamism. But putting in place an effective regulatory and enforcement infrastructure can be equally important, especially in areas where consumers have difficulty assessing the value of products and the risks they can pose.

In all countries – but especially in developing economies – a robust regulatory system is essential to building trust in the marketplace. Consumers need to know that the food they eat, the cars they drive, and the medicines they take are safe. Confidence in local products boosts domestic consumption and makes exports more attractive in foreign markets.

By contrast, a country riddled with regulatory shortcomings will find its arteries of commerce clogged and foreign investors spooked by unpredictable quality and unfair competition from unscrupulous producers. In developing countries, “poor quality regulation and implementation are formidable barriers to entrepreneurship and investment,” according to a World Bank report. “Regulatory failures expose people and the environment to horrific risks.”

As developing countries upgrade their regulatory systems, they should focus on closing legal gaps that put consumers at risk and undermine market credibility. In China, for example, the manufacturers of pharmaceutical ingredients can dodge drug regulation by claiming that their products will be used for non-medical purposes. Even as reputable firms ensure the quality of all their inputs, this loophole can allow unsafe products to enter the market, as occurred in 2008, when at least 81 Americans died after receiving doses of the blood thinner heparin that contained adulterated Chinese material.

By the same token, regulations should be based on international standards, where they exist. For example, American, European, Japanese, and other drug regulators have developed guidelines, through the International Conference on Harmonization, that take advantage of their collective expertise. Countries such as South Korea and Singapore are drawing on these guidelines to flesh out their own regulatory systems. As a result, their citizens will enjoy quick access to new medicines, and their researchers will find it easier to participate in global clinical research, a boon to domestic industries.

Because a regulatory institution can only be as effective as the people who work for it, another area of focus for developing countries should be training skilled staff. In China, fewer than 200 people work at the Center for Drug Evaluation, the agency that reviews applications for new drugs. By contrast, the United States Food and Drug Administration employs 4,000 reviewers, and the European Medicines Agency has 3,000. Predictably, China’s approval process for new drugs is one of the world’s slowest – eight years on average. As a result, patients are denied access to the medicines they need.

Building intellectual capital and institutional competence can take years, but it can be done. A decade ago, Japan’s drug-approval process was lethargic relative to that of other developed economies. The country made the safe acceleration of the approval process a high priority, and tremendous progress has followed. The median time taken to approve new drugs fell from 833 days in 2006 to 306 days in 2012, according to the London-based Center for Innovation in Regulatory Science.

For regulation to be truly effective, it must be backed by robust enforcement – with sanctions for noncompliance. That calls for a legal system that can adjudicate disputes and ensure fair, equitable, and timely treatment. For India, which has only 1.2 judges per 100,000 people (compared to 10.8 in the US), this will be a difficult challenge. According to the Supreme Court of India, in March 2012 the country had 31.2 million cases pending, more than 80% of them in lower courts. Such extraordinary backlogs have persisted – and can undermine the rule of law.

The world’s richer countries created their regulatory infrastructure over generations, during a time when there was little direct global competition. Emerging markets need to create theirs in a greatly compressed timeframe.

This will not be easy anywhere. It will require significant resources, and the process risks angering domestic companies that have become accustomed to a lack of regulatory oversight. But, if implemented correctly, sound regulation can strengthen countries’ growth capacity, while protecting citizens and improving their long-term living standards.