Business As Usual For Hedge Funds, Say Reports

by Philip Morton, Investors Offshore.com

26 September 2001

According to a recent report in the Wall Street Journal, hedge funds returned to business as usual last week, with some betting against US stocks again in the aftermath of the recent terrorist attacks.

Some funds have wagered that the US markets will continue to decline in line with European markets, which have dropped an average of around 15% since the events of September 11th. According to the WSJ, others have made bearish bets against transportation and tourism stocks. Speaking in Hong Kong last Wednesday, celebrated hedge fund manager George Soros, defended those who have chosen to make a move which many of their fellow Americans would see as unpatriotic. 'I don't think you can run markets on patriotic principles,' he explained.

Other managers agree with Soros, and say that they are just trying to get back into the business of making money for their clients, and in the increasingly competitive hedge fund market, fear that they may go under if they do not now begin to act on economic, as opposed to sentimental principle. 'It has nothing to do with patriotism,' the Wall Street Journal quoted another celebrated hedge fund manager, Leon Cooperman, as saying.'I'm very patriotic...I cried a lot over the weekend. But I owe it to my investors to do what is rational.'

Immediately following the disaster, there was speculation in the press that hedge funds would aggressively exploit the opportunity presented, and take aggressive short positions in many vulnerable stocks. There was also speculation that US investment banks would impose restrictions on 'profiteering' hedge funds when the US markets opened.

However, hedge fund managers around the world were outraged, and insisted that no such measures were necessary, a conviction which proved to be well-founded in the vast majority of cases. In an open letter to the financial press, one UK hedge fund community site expressed its outrage at the press representation of the industry.

'Hedge funds have been much vilified by the press in the past,' wrote Simon Ruddick, the Managing Director of Albourne Village. 'For this to be repeated at this time, under these circumstances, and when so many involved in finance are facing the brunt of the human tragedy that continues to unfold, is as tasteless as it is inaccurate.'

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