Random Walk

REMEMBER back, oh, a year or two ago, when the political class, propelled by its powerful mixture of self-righteousness and envy, demanded immediate government action to stop the hedge funds from taking over the world? It wasn’t just the usual suspects sounding off—Nick Brady, the Secretary of the Treasury under Bush, was demanding that George Soros and his like be stopped from setting the values of currencies.

Well of course the hedge-fund managers wish they had that power. But they don’t. Mr. Market, who got pretty irritated with their hubris at the beginning of last year, took them into a back alley and beat them to a pulp with his lead-weighted copy of Technical Analysis of Stock Trends. According to the statisticians at Managed Account Reports, only 27 of the 432 hedge funds that MAR tracks managed even to match the S&P 500 index, which was up about 18 percent in the first six months of this year. That means 93 per cent underperformed—not too impressive for people who are paid 1 to 2 per cent fees on the billions under their management, along with 20 per cent of the profits. The “global macro” managers of the sort who brought down John Major’s pound suffered a median loss of .71 per cent. So the evil geniuses, who according to the French government are “financial AIDS,” turn out to be just a bunch of boys and girls riding a trendline in an up market. Brady is back on the tennis court, where he belongs.

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REMEMBER back, oh, a year or two ago, when the political class, propelled by its powerful mixture of self-righteousness and envy, demanded immediate government action to stop the hedge funds from taking over the world? It wasn’t just the usual suspects sounding off—Nick Brady, the Secretary of the Treasury under Bush, was demanding that George Soros and his like be stopped from setting the values of currencies.

Well of course the hedge-fund managers wish they had that power. But they don’t. Mr. Market, who got pretty irritated with their hubris at the beginning of last year, took them into a back alley and beat them to a pulp with his lead-weighted copy of Technical Analysis of Stock Trends. According to the statisticians at Managed Account Reports, only 27 of the 432 hedge funds that MAR tracks managed even to match the S&P 500 index, which was up about 18 percent in the first six months of this year. That means 93 per cent underperformed—not too impressive for people who are paid 1 to 2 per cent fees on the billions under their management, along with 20 per cent of the profits. The “global macro” managers of the sort who brought down John Major’s pound suffered a median loss of .71 per cent. So the evil geniuses, who according to the French government are “financial AIDS,” turn out to be just a bunch of boys and girls riding a trendline in an up market. Brady is back on the tennis court, where he belongs.