Hedge ClippingThat was told to me as a child, and I have never forgotten it. There have been plenty of illustrations of hubris throughout the ages, from the mythical-Icarus flying too close to the sun-to the fall of the multi-Nobel-prizewinner-toting hedge fund Long Term Capital Management in 1998.
The current bunch of hedge funds seem to be coming a cropper too. They were premised on the unlikely proposition that they would perform in all market conditions. They didn't. Anyone who thought that clever people armed with equations and computers could create value ("absolute returns", "alpha"..."whatever", as my daughter would say) over and above the fat 2 [% per year] plus 20 [% of profits] in fees was suffering from what Dr Johnson said when he heard that a friend had married for a second time: "that, Sir, is a triumph of hope over experience".
It's the same problem as we have with securitisation: managing assets and structuring pools of assets are perfectly sensible. It's going too far (CPDOs/Subprime ABS/Funds of Hedge funds) which causes the problems, and ruins things for the whole market.
By the way, this is not "20/20 hindsight"-please have a look at my letter to the FT from October, 2004
http://www.ft.com/cms/s/0/ab6c40e0-2490 ... 511c8.html
My only disappointment is that no-one ever did advise me how to short these funds. Otherwise I might be writing this from my yacht. Bought from a fund of hedge funds manager.
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