Albourne Village | Hedge Fund LetterThis letter from Albourne has been flying around the internet for a week now. I agree with many points within this letter. There is much pointing at hedge funds as the problem, much regulation proposed to "control" hedge funds. The best point below is that hedge funds are not the ones needing to be bailed out, the banks are. Surely all the blame is not to rest on bank executives, the markets will always move through cycles...but I thought this was was an interesting read. FYI - I'm a huge Albourne fan and have been a member since 2001.
Albourne is not a hedge fund, but it helps pension plans, university foundations and charities and the like allocate money to them. We are hugely proud of this work because we are utterly convinced that hedge funds are good for our clients; good for the markets and good for the average man, and woman, in the street.
For all our sakes, discussion of the role and impact of hedge funds has to be disentangled from the populist politics of envy. For the record, although it should be completely irrelevant: I have never voted Conservative; I was the first in my family to stay in school after 15 and I am hugely proud of my family’s union roots; I am writing this from our offices, which are juxtaposed between a gas-works and a home for lost dogs. I feel compelled to “stand up and be counted” at this time exactly because it will be the vulnerable in society who end up bearing the brunt of the current meltdown in commonsense, if it continues on its current path.
The global credit binge was neither created, nor fueled, by hedge funds. They are now being vilified for having played a role in bringing this madness to an end. Those investment banks running with 29 times leverage, or building societies lending out radically more money then they had received in deposits, were all fully regulated entities. Did the regulators blow the whistle: or the management or shareholders of those banks; or the journalists; or the politicians? Left unabated, just how much deeper into trouble could this inadvertent conspiracy of ignorance and negligence have got us? There needs to be quite a dark word beyond irony to describe why the FSA has initiated multiple enquiries about short-selling without having initiated a single enquiry directed at the officers of the firms that have actually failed. Even the Archbishop of Canterbury now seems happy to pontificate on short-selling, as if it were an ecumenical issue. Presumably he is also against wasps, rain, MMR jabs and a whole host of other things that appear very irritating to those who have absolutely no concept of how equilibrium within complex systems has to work.
For the avoidance of doubt, not a single dollar of tax payer’s money has ever been, nor ever will be, needed to bail out a hedge fund. Indeed, there is already a pool of $700bn waiting to rescue the world’s financial markets: it is called the hedge fund industry. Quite simply, it works because of an alignment of interests. Hedge fund managers put their own money, alongside that of their clients’, exactly where their mouth is. Of course, there will always be some who just find the rich intrinsically unattractive. They should vote for higher taxation. Many may then take that wealth, their taxes, their donations and the business that their consumption creates somewhere else, but at least London’s loss would be some other city’s gain. What would convert a crisis into a tragedy would be to regress to a state-managed economy where rules will always be “gamed” and where corruption fills the vacuum left by honest aligned god-fearing endeavord.
Hedge funds are not the problem. They are the solution.