When the erstwhile vice-chancellor of Germany, Franz Muntefering, described hedge funds as locusts it was not intended as a compliment. However, locusts, in common with other species with J-shaped growth curves, are nothing if not survivors. The population of organisms characterized by this evolutionary profile can expand at an exponential rate in a new environment. Such species are density-independent until some external force, such as changing weather, precipitates a correction in population.
After a long period of rapid growth it seemed as if hedge funds had reached this "bust" stage this time last year. A record 1,471 hedge funds, 16% of the industry, went out of business in 2008, according to Hedge Fund Research. Closures, redemptions and adverse markets combined to wipe $900 billion from the value of hedge fund assets between their peak at the end of 2007 and June this year. Other resentful investors found themselves trapped in...
