Moneyweb – Earlier this month, the European Central Bank (ECB) warned that hedge funds had created a \u00c3\u00a2\u00e2\u201a\u00ac\u00c5\u201cmajor risk\u00c3\u00a2\u00e2\u201a\u00ac\u00c2\u009d to global financial stability; for this, the ECB warned further, there were noobvious remedies. For the novice, hedge funds can best be described as the hyenas of the financial markets universe.<\/p>\n
They are normally staffed by bright young things that are less accountable to clients than managers of any other kind of investment fund. There are thousands of hedge funds around the world \u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u0153 andpossibly as many as 100 in South Africa \u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u0153 which operate in a largely unregulated environment, and manage as much as $1 trillion globally.<\/p>\n
One of the biggest challenges for these highly paid managers is that for the past three years, hedge funds have increasingly underperformed a straight bet on both equities (which were until recentlyin a major bull trend, from early 2003) and sovereign debt (government bonds). This is a terrible tragedy, given that the grossly overpaid bright young things which run hedge funds have now made amockery of the very birthright that hedge funds claim; that being, of course, the ability to outperform other asset classes.<\/p>\n
For the doubters, a reading of the May 2006 Morgan Stanley Capital International (MSCI) Hedge Invest Index Performance Summary will show just how pathetic hedge funds have become, and just what kindof bottom feeders they have disintegrated into. MSCI, it should be noted, develops and maintains equity, fixed income (bond), multi-asset class, and hedge fund, indices that serve as benchmarks foran estimated $3 trillion of invested funds on a worldwide basis.<\/p>\n