NEWS

 “Power to the Hedge Funds!  Long Demonized, They May be the Model Firms of the Future.”

By Michael Hirsh.  Newsweek.  “The hedge-fund industry has shown remarkable resiliency in the face of the catastrophe, turning in a gain of 0.53 percent in the first quarter. (In addition, a lot of the worst performance occurred in September and October, when failing banks turned off credit to the hedge funds, forcing liquidations.)

“Ken Heinz, the head of Hedge Fund Research, says that while the industry has had an astonishingly wide range of returns—from a 59 percent drop for the worst performers over 12 months to a 33 percent gain for the best—the average decline was 19 percent. That sounds bad, except that equity funds plunged about 40 percent during the same period. If you’re an institutional investor, which are you going to choose? Over the longer term, some of the numbers—depending on how you slice and dice them—look even better. Compared to the 10-year Standard & Poor’s average—which is at a miserable minus 26 percent—the record of the biggest hundred hedge funds averages a 100-percent-plus gain during that same 10-year period.

“‘The hedge fund industry has frankly acquitted itself fairly well,’ says Dan Gertner of Grant’s Interest Rate Observer. ‘Much better than the investment banking.’

“Hedge-fund managers—the good ones, that is—have often served as invaluable early-warning systems. Before Enron collapsed it was Jim Chanos, president of Kynikos Associates, that gave the story to Bethany McLean of Fortune magazine. Her story, ‘Is Enron Overpriced?’ was the first major sign that the company was an out-and-out fraud.