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Harry M. Kat, PhD, Professor of Risk Management and Director Alternative Investment Research Centre in London, sent this article to Opalesque today.

Watching TV and reading the newspapers, it appears that the "I told you so" season has arrived, as I’ve seen quite a number of people claim they saw it all coming a long time ago. I’m not going to make that same claim, as I didn’t predict the mayhem that we’ve experienced over the last two months. I simply never thought Hank Paulson’s hidden agenda would stretch so far as to let Lehman Brothers go under and thereby create the acute crisis of confidence we have experienced. My "I told you so" concerns hedge funds’failure to protect investors during the recent crisis.

After it became clear that hedge funds weren’t generating the super-returns that people were looking for, about 5-6 years ago the hedge fund marketing machine changed its tune and started to emphasize the role of hedge funds as diversifiers. Hedge funds were said to generate ‘absolute returns’, i.e. returns uncorrelated with stocks and bonds. Many investors bought into that story, seriously expecting hedge funds to protect them in troubled times.

Over the past 5 years I have spoken on this subject at over 150 conferences and seminars worldwide and written numerous articles in newspapers and journals. One of the main points that I have been making is that a diversified portfolio of hedge funds typically does not offer investors the di......................

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