Newspaper article The Evening Standard (London, England)

Sprouting Hedge Funds May End Up on Compost Heap

Newspaper article The Evening Standard (London, England)

Sprouting Hedge Funds May End Up on Compost Heap

Article excerpt

Byline: MATTHEW LYNN

FROM time to time, a story rolls into view from which the mind reels in stupefied amazement.

Take this one: Minster Trust, a small London bank, is to launch an incubator for hedge funds.

Rewind that a moment: an incubator for hedge funds. The scene is almost too surreal to imagine.

Picture it. A big room, overflowing with terminals, phone lines, cappuccino machines and tourist guides to the Cayman Islands.

Everywhere you look, there are small groups of serious-looking young men and women, kitted out in the pinstriped suits, power shoulders and thick braces copied from style magazines of the mid-1980s.

In one corner, they are roughing up the baht and ringgit, while in another, they are roasting the rouble and turning the euro into toast.

Across the floor, tiny wannabe billionaires run around like pintsized George Soroses, shrieking in east European accents about reflexivity and double and triple-loop market feedback.

Over there, the miniature, aspirant John Meriwethers huddle with fuzzy-haired mathematics professors, building bigger and bigger black boxes and constructing ever more arcane formulae for beating the market. The hallways and dungeons of Bedlam would have looked sane by comparison.

Comedy aside, however, there is a serious point to this tale. It tells us which way the wind is blowing. That anyone should be contemplating such as thing is as good an indication as any of the booming demand for hedge funds and of the rampant enthusiasm with which ambitious young financiers are moving into the sector.

It also tells us that right now hedge funds are about the hottest, most fashionable beasts on the planet.

Incubator? Where did we hear that word recently? Oh yes, there were hundreds if not thousands of internet incubators, all of them staffed by very much the same sort of people, except wearing chinos and sweatshirts and working on plans for portals for dog lovers, and b2b exchanges for the soft cheese industry.

Hedge funds are now moving into the space vacated by the collapse of the internet boom.

Last week, Tass Research reported that investors put $6.9 billion ([pound]5 billion) of new money into hedge funds in the first quarter of 2001, almost as much as in the whole of 2000.

At the same time, a Goldman Sachs report predicted a 60% jump in European money flowing into hedge funds. In Europe, two such funds are being opened per week. Already, there are 1600 hedge funds around the world.

Rabbits in cages fed on double-strength lettuce do not multiply that quickly. So what is the reason for the boom? Just as nature abhors a vacuum, so a free market abhors a big pile of cash sitting around doing very little.

One explanation for the success of hedge funds is that there is lots of cash without very much else to do. …

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