Back The Bros Against The Hedgies

Hedge funds are today definitely in the latter category; the days of the old Morgan Stanley are long gone. Thus, their partners must worry all the time about whether one of their colleagues is shading things a bit too much. They must also deal with myriads of compliance officers tripping up over each other, trying to ensure that they don’t. Sometimes it goes wrong; one need only think of the German payments processor Wirecard – payments processing, what could be simpler? — where 2 billion euro appears to have gone walkies, sending the company bankrupt, with only some of the senior management having any idea what was going on. Again, this kind of worry is not conducive to good investment performance – or to a good night’s sleep, the lack of which is also not conducive to good investment performance.

Over the next couple of years, the market is likely to implode because of poor U.S. economic performance. Hedge funds, who are far less hedged than their name would suggest, will equally be subject to a savage weeding out. The Bros will doubtless also suffer, although most of them will find ways to survive and even prosper. When the dust clears from the collapse, there will be few hedge funds remaining, and they will find it difficult to raise new money from the palsied pension funds and the weakened endowments. That is not much loss. Hedge funds are peripheral; we need only a few of them.

Bros, on the other hand, are essential to a well-functioning market!

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(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of "sell" recommendations put ...

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