No, Not The Hedge Fund Managers
By
Tim Price
Jun 12, 2006
They live in a high-octane world. What they do is risky. They're grotesquely overpaid, they have few scruples, and their influence on the markets is out of all proportion to their true size. They're fast, extremely short-termist and utterly unregulated. Yes, they're journalists writing about hedge funds.
Speculative features on hedge funds continue to surge in popularity. Once the preserve of rich sophisticates, hedge fund articles have mushroomed from a niche position in speculative publications into blanket coverage across ordinary newspapers. Some commentators believe that with such explosive growth in the sector, problems are inevitable.
'These guys are opportunistic,' says hedge fund manager Peter Madeupname,
'They are constantly on the search for new commissions, and they have very little discipline.'
Hedge fund journalists can and do employ a wide range of cliches. By and large, they engage in high speed, computer-aided jeremiads to take advantage of the gullibility of buyers. These strategies have certainly worked in the past: since 2000, column inches devoted to hedge funds have increased by 153% per annum versus minus 78% for pieces on conventional assets. Is the flood of journalists into this space tantamount to a gold rush? Certainly, hedge fund journalists tend to move in herds and crowd out more traditional commentary.
Recent wild swings in investor pessimism have been attributed in part to the speculative features of hedge fund journalists. Hedge fund journalists have a market impact way beyond their true numbers, mainly because they write so much - some commentators believe they account for half the financial commentary in tabloid publications - and also because they often employ hyperbole, a strategy which magnifies the impact of their articles. 'Apocalyptic death march of blood-letting horror', as William Facile for the New York Times recently wrote, on the performance of the HFR Market Neutral Index, which reported a monthly loss of 0.03%.
Some journalists have suggested that hedge fund managers boil babies in acid. Others, that hedge funds represent an unfair challenge to traditional fund managers, in that they offer the possibility, however slight, of a positive return.
Meanwhile, competition among hedge fund journalists is increasing as more and more pieces are created. There are particular concerns about the way hedge fund journalism is now packaged and sold to retail consumers. Some editors are buying senior pieces which are relatively stable but many are buying more junior pieces which are often haphazardly constructed and of dubious worth. There are now as many as 8,000 critical articles circulating in the marketplace, not all of them commissioned by Forbes, compared with just 15 ten years ago. That's making it ever more difficult for hedge fund journalists to find an edge, and forcing them to use ever riskier high speed strategies to get their features into print. In a rumour-driven market beset by supply, some editors are even returning commissioned pieces.
As new hedge fund journalists spring up to fill apparently insatiable retail demand and as competition among them increases, the risk of less reputable or just plain untalented hedge fund journalists entering the field rises. As things stand, hedge fund journalists are unregulated. Some commentators suggest that planned regulation of hedge fund journalists simply won't work. In Europe, where there appears to be a greater appetite for hedge fund journalism, there is still a lack of the necessary skills to analyse them properly. A lot of interest in hedge funds by journalists is deemed to be superficial. Many analysts have also voiced concern at the massively derivative nature of hedge fund journalism.
The biggest users of questionable hedge fund journalism are BusinessWeek, Forbes, the New York Times, the New York Post and Bunty Magazine. These entities now have about 80% of their overall column inches in shoddy hedge fund journalism and this is expected to rise to 100% in coming years.
Tim PricSenior Investment StrategisAnsbacher & Co Ltd.
Published in Investments
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Tim Price
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