Hedge fund managers are back

Date: Friday, July 26, 2002

"How fitting that the Dow Jones industrial average is back to its 1998 levels," writes Danny Hakim in today's New York Times. "John W. Meriwether, whose hedge fund, Long-Term Capital Management, flamed out in spectacular fashion that year, is gaining ground once again. Mr. Meriwether has amassed $1 billion in assets in his new fund, known as JWM Partners, and has recorded a profit of more than 6 percent for investors this year, according to people with access to its results." "Mr. Meriwether's second act — after disrupting the global markets and being bailed out by a dozen banks in 1998 — serves as a reminder that someone is always getting rich, no matter how steeply the stock market indexes are falling." "In fact, some Wall Street titans who struggled during the bull market have lived to see another day in this bear market. Complex strategies long practiced by George Soros and Mr. Meriwether are resurgent, as are funds that invest in emerging markets and distressed securities and those that bet against the stock market by short selling. Betting against the dollar has worked for many, and some have bet against stocks using futures contracts and buying bonds." "Their success is attracting billions of dollars to hedge funds — secretive and lightly regulated investment groups that cater to the rich and increasingly the upper middle class, as well as to college endowments, pension funds and foundations. Hedge fund assets rose to $563 billion last year from $408 billion, mostly from new sales, and the pace is said to be similar this year, according to a hedge fund advisory firm, the Hennessee Group." " 'One of the great challenges of the "hedge fund" business that we are in is that it has become mainstream,' wrote Lewis Moore Bacon, the chief executive of Moore Capital Management, one of the biggest funds, in a May letter to his investors." " 'The welter of hedge funds being created of late gives everyone, even the newcomers, pause,' he said, adding that investors were driven to hedge funds by 'the same unease and distrust of conventional institutions and practices that led me into the arena of speculative trading as a hedge against the uncertainties of pre-Reagan America.' " "Some analysts suggest that the proliferation of hedge funds has contributed to the market's recent volatility, because such funds are expected to find ways to make money in all environments. But those in the industry counter that mutual funds, a much larger business, have been under more pressure to sell because investors can withdraw money from them daily, instead of once a quarter or once a year as permitted by most hedge funds." For more, please see : New York Times Online