Hedge Funds: The Root of All Evil?

According to Paul Krugman, op-ed columnist for The New York Times, in his blog last month, Iceland believes it may be the victim of a conspiracy of “unscrupulous dealers” trying to break the country’s financial system. “They will not get away with it,” says Central Bank Governor David Oddsson.

According to Krugman, “Such things really do happen … According to the Hong Kong Monetary Authority [HKMA] , several major hedge funds engaged in a ‘double play,’ shorting both the city-state’s stock market and its currency.” The nefarious plot in the late 1990s was thwarted when the HKMA bought up a large fraction of the Hong Kong stock market.

Last year, New York magazine asked the question: “Are hedge funds the virus that’s going to make the markets keel over? Are they an evil cabal?”

Clearly, hedge fund PR is a concept that a lot of people managing these funds today dismiss or overlook entirely. It baffles me. The elements of the perfect storm public relations crisis are all about the hedge fund industry: the “elitist” investment profile, the shadowy but enormous impact on the financial markets and the volatility that is the nature of hedge fund investing. We’ve already seen glimmerings that all these elements can come together and create some serious problems for the industry.