We hear many criticisms of hedge funds but none is surely as powerful as that from one of the most powerful hedge fund managers in Britain, Hugh Hendry, who critiqued his own peers.
Now it’s interesting, he wasn’t critiquing them on the grounds that lots of other people do - that they’re spivs and speculators who sell short and make money out of other people’s misery - he seemed to support a much more subtle critique of where hedge funds have gone wrong.
When you analyse whether someone is an investment genius or an investment fool you have to judge them over the whole economic or financial cycle. You can’t just look at their performance over ten years and say, look, they were very, very clever, they just happened to lose all their money in year 11. You have to judge the strategy over the whole cycle, and the problem with many of the hedge funds is their strategies worked because they were taking small risks that would only blow up very occasionally.
But when you take those blow ups - those occasional blow ups - into account, their strategies were not clever at all. And that’s what a lot of them are discovering in this crisis.