Starbitrage fated to fail
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Starbitrage fated to fail

As the managers of the two Bear Stearns high-grade hedge funds that have attracted such unwelcome publicity over the past month squirm in the spotlight, they must be wondering where they went wrong.


If they could turn back the clock, would their approach to asset selection be any different? A novel approach adopted by a London-based hedge fund could be an option. According to claims filed in the UK High Court by a disenchanted former partner in the fund, investment decisions were made after consulting a French astrologer, and the firm’s offices were checked out by a feng shui consultant in order to bring good fortune to the business. Spiritual cleansing rituals were carried out with small figurines (‘trolls’ or ‘ogres’) positioned in desk drawers and piles of sand and pebbles placed strategically in the corners of the fund’s sumptuous offices. Alas, barely two years after the fund’s launch, investors had pulled out 40% of their money after a disappointing performance. So perhaps the Bear managers should stick to buying CDOs backed by dodgy sub-prime mortgages after all.

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