The case for the prosecution of hedge funds is already
familiar enough. But that does not make the allegations any
less powerful or damning. The argument, simply enough, is that
during the economic crisis hedge funds conspicuously failed to
do what they said on the tin. The charge is not just that they
delivered beta masquerading as alpha. It is also that they were
unable to offer liquidity when it mattered, with extensive
lock-ups and gating leaving their investors frustrated and
angry. Other complaints were that some investors appeared to
enjoy preferential treatment over others, and that hedge fund
documentation was shown to have been opaque and feeble.
Steve Prince, Silver Creek Capital Management, Martin
Fothergill, Deutsche Bank and Pierre-Yves Moix, Man
The case for the defence, meanwhile, centres chiefly on two
arguments. The first is that the crisis of 2007-2008 was the
product of an unprecedented combination...