KEY POINTS:
Last week I observed that hedge funds, the least regulated bit of the financial system, seemed to be doing better than other investment institutions. Er, not so fast, Hill Cone. The Wall Street Journal's Wealth Report said hedge funds would be the next "shoe to drop" and there had been a rush of redemptions, with American investors yanking a record US$31 billion to US$43 billion out of hedge funds in just three months. The HQ of hedgefundom, the leafy village of Greenwich, Connecticut, is apparently bracing itself for a collapse in the industry. Frightening: one of the village's two Rolls-Royce dealerships might have to close. Billionaires might be reduced to mere millionaires. As local Democrat Ned Lamont tastefully put it: "This is our Katrina." One of the most successful hedge fund managers in the world, Andrew Lahde, said goodbye - and good riddance - to his old life in spectacular fashion with a public letter to his investors saying he had hated every minute of hedge fund life.
You don't hear much about hedge funds in New Zealand; here, they tend to be blandly called "boutique" absolute return funds and keep a low profile. Absolute return funds aim to make positive returns whether the overall market is up or down. I didn't even know there was a New Zealand Absolute Return Association. But this week I received a press release from Nzara - no, not the name of Angelina Jolie's lovechild, but the aforementioned association - announcing the new New Zealand hedge fund index. The Ernst & Young-compiled index of seven local funds found that in the year to date the index has returned 12.4 per cent, and was up almost 4 per cent last month. To use technical terminology, that's bloody amazing. Attached to the release was a graph showing the New Zealand funds as a sunny mountain range compared to three other measures languishing in the foothills, including the HFRX Global Index, considered representative of the hedge fund universe.
Why are we doing so well? Nzara chairman Anthony Limbrick of Pure Capital says they have a hypothesis that our distance from the market is one of the main drivers of their outperformance. Limbrick says it is easier to make rational investment and business decisions when one is not caught up in the noise, as those in London and New York would be now. But I wonder whether it is the exam factor. Remember how you would get psyched out if you talked to your fellow students before going in to an exam? But if you were on your own it was a doddle. The lesson being: don't let your confidence be dented by talking to other people. "Although this recent environment has been very stressful, when I talk to local managers, compared to offshore, everyone appears more relaxed," Limbrick says. Nice to know the arrogance of hedgies isn't completely lost down here: "Although that could be just because we are making money."
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I've been swotting up on John Maynard Keynes. To pronounce his name properly, just remember the poem made up as the economist was negotiating the new financial system in Washington in the 1940s. "As Lord Halifax said to Keynes, They have the moneybags, We have the brains." Keynes has been in and out of fashion, but he was always a cool dude. He even wrote saucy letters to his bisexual lover, Bloomsbury character Lytton Strachey, before Keynes straightened up and married a ballet dancer. Keynes - a journalist, art collector, mathematician and all round brainiac - is certainly in vogue again.
Even the most committed monetarist has to admit that Keynes' life would make a better screenplay than austere old Milton Friedman, son of a dry-goods merchant who was going to be an actuary.
deborah@coneandco.com
