For me, the first epiphany came in October 2005 when I was out cycling with some friends. One of them told me he had nine buy-to-let mortgages with the Woolwich Building Society – now absorbed but unlamented into Barclays – even though he did not have a job. This was the same building society-turned-bank that would not extend me a mortgage, even though it was for less than 20% of the value of my house and even though I had a job. This was a sure sign that the Woolwich had totally lost control of its risk management processes.
Cycling also played a part in reinforcing my scepticism about the merits of hedge funds. On one foreign trip, someone who was setting up a hedge fund casually told me that trading was a marginal business. This prompted an obvious question: “Do your investors know this?”
This was a short time after I’d had the pleasure of sitting next to comedian Ruby Wax at the Euromoney FX dinner in 2006. Wax told me that she, along with most of her showbiz chums, had put all their money in hedge funds. At this point it dawned on me that hedge funds had become the modern equivalent of Lloyd’s of London, you never lost money.