Many are trying to understand or explain the synchronized decline in stocks, bonds and commodities in May. My explanation: It is the hedge fund industry’s dirty little secret.
A long time ago, hedge funds were predicated on superior stock picking.
But in the intervening time, as hedge funds grew in size and quantity, it became increasingly difficult to differentiate investment performance by picking superior equities. As the pools of capital attracted to the hedge fund business multiplied geometrically, the industry morphed away from stock-picking and became a leveraged pool of capital. (Long-Term Capital begot others.)
