Nine reasons to go and hug a hedgie

Date: Wednesday, December 17, 2008
Author: FT Alphaville

The Madoff scandal means it’s open season on hedge funds, notes Lombard’s Andrew Hill. … here are Lombad’s nine top reasons to “hug a hedgie”:

1) They provide liquidity. More liquidity equals less market volatility.

2) They help burst bubbles. Short selling is as popular as a cold sore under the mistletoe. But who can now say the shorts were wrong about the banks?

3) They help restore confidence. It’s hard to invest when credit is in short supply, but hedge funds naturally play host to the kind of inspired risk-takers who will spot likely gems in the rubble and pull them - and us - out of the downturn.

4) They innovate. Innovation is a dirty word. Combined with excessive leverage, it has proved a dangerous concept, but properly applied, it will provide creative fuel for recovery.

5) The survivors will be better people. All right, I exaggerate. Some will just be lucky; many will still be arrogant. But 7,500 hedge funds is at least twice as many as the world needs. A cull should kill the lazy and the dumb, while sparing the skilful.

6) The survivors will cost less to employ. The industry’s mid-2007 fee structure looks as outdated as a 1929-vintage stock ticker machine. Hedge funds (and few will call themselves that in future) will adapt their fees and strategies to suit wary investors.

7) They help prop up the economy. Do you really want to witch-hunt all that wealth out of Mayfair?

8) Even hedgies need love. Psychologists say that for the first time since graduation, people who have learnt to present an indestructible optimism to the outside world are crumbling. Giving them a hug may be too much to ask but . . .

9) It’s nearly Christmas.