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Opinion

Inside investment: Thank heaven for hedge funds

Hedge funds are in the news for all the wrong reasons. But strident calls for regulation are more than just wrong, they are downright dangerous. Financial markets need hedge funds more than ever.

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Before penning this column, yours truly was given one instruction by my esteemed editor. Knowing that for various reasons this would be written in August, he insisted: "Write something that isn’t time sensitive." However, recognizing the danger of creating a hostage to fortune, this advice is going to be ignored. For one month only, this column starts with a prediction.

By the time the print issue of Euromoney lands on your desk, the distress at two Bear Stearns hedge funds, Basis Capital Funds Management and Sowood Capital Management, will have been all but forgotten. They will have been displaced in the headlines by other funds in trouble. From Boylston Street, Boston to Macquarie Place, Sydney, credit hedge funds face an existential crisis.

What has prompted this outbreak of crystal ball gazing? Consider the facts so far. It is perhaps not clever of a hedge fund analyst sitting comfortably in an office overlooking Sydney’s Circular Quay to believe that he can second-guess the mind of a financially stretched American blue-collar worker faced with sharply rising mortgage payments on a depreciating asset. But is Basis Point Capital the dumbest hedge fund out there? Probably not.

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