New York Times Dispels Hedge Fund Bubble Mythology - Nearly
Jul 8th, 2007 | Filed under: Hedge Fund Industry Trends, Media Coverage of Hedge FundsOnce again, the New York Times provides an all-too-uncommon rational and clear-headed analysis of the hedge fund industry - without the populist hype that many mass media outlets have come to rely on to sell papers.
Friday’s article “How This Boom Differs From the Dot-Com Days: Hedge Funds Make Money” is insightful for two reasons. Firstly, it draws legitimate parallels between the hedge fund boom and the dot-com boom. And second, it explains exactly where those parallels end. Still, we’d say the article might be a little quick to write off over-valuation risk in the hedge fund industry.
Says the Times:
“The bubble talk derives in part from some of the startling similarities between the technology boom, circa 1999, and the current hedge fund gilded age. During both periods, top Wall Street bankers and traders abandoned their traditional confines in search of big money, casual dress and guaranteed free fresh fruit. Each era included lots of talk about paradigm shifts, much of it from self-interested quarters like Wall Street, which always finds a way to turn the next best thing into a pile of loot. In both instances, small groups of very young people made eye-popping sums of money. And now, add to the eerie similarities the fact that hedge funds are racing to go public.”
No doubt there are striking similarities between these two capital market mega-trends. In fact, one of the first postings on this website made the very same comparison (see “Hedge Funds: E-Business Redux?”)
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Very good analysis.
I wrote almost exactly the same but figured I was wasting my breath sending it to her. I’m a bit less forgiving in my assessment of the article. The simple fact that she didn’t follow the typical OMG screed doesn’t mean she should get a pass for assuming that somehow “hedge funds,” generally, have some inherently sustainable edge that justifies their amazing valuations.
[…] This last point bears some reinforcement, we believe, because “bubbles” occur when investors bid up prices in a relatively short amount of time. As this report points out, the percentage of assets managed by hedge funds has grown rather slowly, they continue to represent less than 1.5% of global “mainstream” assets and their net asset values are based on underlying securities, not a subjective premium like, for example, tech stocks (see related posting). […]