Galapagos Hedge Funds & Andrew Lo
(http://hedgefundblogger.com) I like Andrew Lo's thoughts below, this is exactly why hedge funds will emerge stronger than ever after the crises. Our industry is a rapidly evolving organism which adapts 4x quicker than the banks and 50x faster than the government. Here's an excerpt from a FT article which Dr. Lo helped produce:
Hedge funds are the Galapagos islands of the financial services industry. So at least says Andrew Lo, the Massachusetts Institute of Technology economist who has pioneered the application of evolutionary biology to markets.
According to Mr Lo and many of his acolytes, markets are not efficient, as had been assumed by academics for the past generation, but rather they are adaptive, with participants following Darwinian rules. After periods of relative stability they will undergo periods of intense change as participants evolve to take account of new realities.
Hence hedge funds are markets’ Galapagos, the islands whose unique eco-system allowed Darwin to work out his theory of evolution, because evolution there happens so fast. Lightly regulated, hedge funds offer the closest thing we have an experimental laboratory for testing which ideas for making money will prove to be the fittest.
For much of this decade, hedge funds had appeared to evolve far more nimbly than their lumbering cousins in the regulated financial industry. At the beginning of this decade, as the conventional “long-only” equity funds that dominate the retirement saving industry were suffering severe losses in the wake of the bursting of the internet bubble, hedge funds avoided losses. Keep reading the article by clicking here.