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From Philippe Manet, Peak Partners Geneva (www.peakpartners.com).

Whilst journalistic and political venom has been squirted at hedge funds, the evidence is that, as a whole, they have managed to contain losses better that traditional forms of investing in risk assets. Indeed, indices indicate that hedge fund losses have been around one half of losses in equity markets.

While this performance is disappointing, it is worth noting that most hedge fund strategies have had to operate without most of their ‘tool-box’, due to restrictions on short-selling, declining liquidity, withdrawal of credit lines and a dwindling number of counterparties.

Since many banks had chosen to become hedge funds with less transparency, questionable alignment of interest and doubtful skills, it is worth comparing the 18.2% decline in the HFRI fund weighted index with the 62% loss in the Amex Select Financial Sector Index.

Several differences should be pointed out; first, financial companies have used every possible trick to avoid marking the entirety of their holdings to market, unlike hedge funds, and, second, the recovery potential for banks will be limited by their shrinking business mix, which will contribute to capping multiple expansion.

Again, hedge funds draw criticism because it is felt that they operate in a parallel world where different rules apply. Quite to the contrary, the hedge fund world is much cl......................

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