Can the new breed of hedge fund managers be trusted?

In the last six years, the hedge fund industry has been the most amazing gravy train for everyone involved. And now ordinary investors have the chance to joining as hedge funds join the City establishment. But if the returns on offer are so high, why are valuations so low?

The hedge-fund industry really has been the most amazing gravy train for pretty much everybody involved over the last six years. It was the dotcom boom for those who missed out on the chance to set up their own business the first time round. And appropriately enough, it was the collapse of the dotcom boom that gave the industry its greatest boost and ensured its pioneers made the eye-popping fortunes that their internet forebears were denied. As the stockmarket tanked, hedge funds offered investors an opportunity to make money by selling shares short or investing in bonds and other financial instruments whose performance was not linked to the stockmarket. And it afforded those who set up these funds the chance to charge lavish fees typically 2% of funds under management and 20% of profits made.

Since then, hundreds of hedge funds have been set up in London alone, managing billions of pounds. And besides the thousands the industry employs directly, it supports tens of thousands of others across the City, not least in the investment banks, for whom the hedge-fund industry has become one of the biggest sources of fees. The success of the industry has transformed the social geography of Britain. Fortunes have been created on a scale and in a timeframe that we have not witnessed for 100 years, if ever before. According to The Daily Telegraph, the average age of buyers of Old Rectories in Britain has fallen by ten years to people in their early thirties.

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Simon Nixon

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.