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This article was authored by Bryan Goh, First Avenue Partners LLP, London.

The hedge fund industry has come under a lot of fire in the last 12 months. They have been blamed for falling markets, failing banks, rising costs of credit, bad weather, you name it. But while it is easy to target an industry where a hedge fund manager can earn millions in a year, what do we really love them for and what do we really hate them for? We know that they are clearly not responsible for the troubles in the banking industry. The weather is another matter…

While I have defended the performance and relevance of hedge funds, there are areas where hedge funds have been deficient.

Why we hate hedge funds:

Style drift is a major major complaint. Style drift is when your equity long short manager starts trading credit, or fixed income or starts buying unlisted private companies. Style drift is, however, hard to define and hard to police. Is an equity manager with a very fundamental bottom up process guilty of style drift if he chooses to express his view on a company by buying preferred shares? Or the bonds issued by the same company? Blatant style drift is rare and easy to detect if you know what you are doing, but even experienced due diligence people can be eluded or deluded by more subtle types of style drift. Is someone who trades convertible bonds for their volatility characteristics guilty of style drift i......................

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