The damning money-weighted rates of return analysis carried out by Simon Lack in his book The Hedge Fund Mirage has prompted a useful debate about the true returns recorded by hedge funds. Industry lobbyists have not had much luck in undermining his critique, which is hardly surprising as the data, interpreted correctly, is essentially unanswerable (the conclusions you draw from the data is another matter).
The latest academic research into the performance of John Maynard Keynes as an investor adds some important detail to a story that has long fascinated – and inspired – stock market historians and professionals. It is well known that the most famous economist of his day made a fortune for King’s College, Cambridge, where he was the Bursar for more than 20 years, by buying and selling stocks for the college’s endowment and speculating happily in stocks and commodities on his own account.
Expectations for progress in solving the problems of the eurozone have fallen so far that even the smallest signs of progress are liable to be greeted more rapturously and invested with much more significance than they deserve. Last Friday’s patched up deal to allow Spain and Italy to funnel bailout funds directly to their banks is one such small measure coming after 19 largely abortive summit meetings. Europe’s divided political leadership may soon discover that their efforts to fix their flawed single currency project are merely a sideshow to the much bigger issues facing the world economy in the aftermath of the global financial crisis.
Having lavished some praise on Paul Krugman some time ago for the clarity of his explanation of how and why the economics profession missed the onset of the global credit crisis in 2007-08, it pains me to say that his latest book, which he was in London promoting last week, is also an excellent read. Nobody who reads End This Depression Now! can fail to understand his prescription for avoiding what he fears is a deepening – but eminently avoidable – economic slump around the world. Whether it adds up to an effective policy prescription is another matter.
There is always a lot to be said for keeping things simple, and it is gratifying to see how robustly accurate some of the simplest methods of asset class forecasting continue to be. The secret of building a robust long term record, experience suggests, lies in giving yourself a sensible time horizon (at least five years), concentrating on a few fundamental valuation metrics and downplaying or better still ignoring wherever possible macro-economic forecasts.
One of my New Year resolutions – and sadly the first to be broken – was not to write any more negative articles about hedge funds. Some of the poor chumps in the industry seem to be sensitive to anything remotely critical of their activities. My measured comments in this space last August prompted the industry’s official lobbyist, the Alternative Investment Management Association, to complain that I was peddling “hoary old myths” about the hedge fund business.