By Aradhna Dayal
As the world mourns the loss of Steve Jobs – an iconic human being who, with his vision and creativity, changed the world – I cannot help but think of the visionary characters that revolutionised the investment world with the concept of hedge funds.
Names that come to mind are those of pioneers such as Benjamin Graham and Jerome Newman, Bernard Baruch or Alfred Jones – the legendary investors who introduced skills such as shorting, leverage and performance-based fees to transform the world of investing.
Much like Jobs, they were people who had the conviction to follow their dreams and beliefs. They infused creativity, foresight and technology to engineer investment vehicles that enabled true alpha generation in what was primarily a beta-driven investment world.
Hedge fund managers were probably also the first investors to realise the power of Black-Scholes and similar quantitative tools to hedge away market risk and offer true alpha products – through funds that were market-indifferent or absolute return in nature, allowing investors for the first time to preserve capital and make money in both up and down markets.
So it is perhaps not a complete overstatement to say that hedge funds did to beta products what Apple did to the world of computing and phones.
A look at the present global economic and market conditions shows how hedge fund managers are still to a large extent doing what Jobs preached and practised. In his famous 2005 commencement address at Stanford, Jobs talked about two key points: connecting the dots; and love and loss.
In many ways, hedge fund managers the world over today are indeed connecting the dots. In my travels I’ve met managers who are using their early forays into once-impregnable markets like China and commodities to run Sino-Western metal arbitrage funds; managers that are applying rocket-science maths and cutting-edge research to create sophisticated and innovative trading models; and managers that are using their experiences from the Mexican peso crisis to the 1997 Asian crisis to create smart ‘black swan’ strategies.
In short, these are people who are leveraging upon their life experiences to form strategies that aim to go beyond the normal, mundane investment boundaries and to protect capital amid what are probably the most volatile market conditions this century.
The second point Jobs highlighted was love and loss – which, in case, related to his exit from Apple and subsequent triumphant comeback. Since the 2008 financial crisis, it would be fair to say that a large number of hedge fund managers – who were so passionate about their craft – have tasted the bitter pill of significant negative returns and redemptions.
The Asian hedge fund industry is a testament to that, having seen its overall assets under management plummet from $192 billion at the end of 2007 to $119 billion in June 2009.
However, much like Jobs, hedge funds have not lost faith. In fact, I believe that the Asian hedge fund industry has come out of the crisis much more institutionally and systemically robust than before.
And it is this new-found strength – based on solid operational infrastructure, alignment of interests and the development of long-term investor bases – that will go a long way towards making the Asian hedge fund industry a mainstream asset allocation class for major international investors in the years ahead.
A final point that Jobs made in his inspirational Stanford address was to stay hungry and stay foolish. I believe that in truly testing times such as these, when hedge fund managers globally are struggling to sustain returns and their businesses, the only way forward is to continue reinventing themselves and looking at newer ways to produce alpha – from areas such as renewable energy or even social investing.
As we mark the 10th anniversary of the AsiaHedge Awards, I cannot help but reflect on the history and development of our own business. In our own small way, and one that is clearly a very far cry indeed from Apple, our business also started off in a garage (metaphorically speaking at least – it was actually a spare bedroom).
When HedgeFund Intelligence created AsiaHedge back in 2000, the aim was to create a kind of ‘family’ via a single platform – unifying for the first time as an “Asian hedge fund industry” a previously disparate group of managers that were trading Asian markets from widely scattered locations across New York, London, Hong Kong and Tokyo.
Ten years on from the first AsiaHedge Awards, much has changed in the Asian hedge fund industry – and there are big challenges ahead again. But what remains the same is the philosophy and the pioneering spirit that inspire and drive this entrepreneurial business of hedge funds.
So here is hoping for a world that continues to be inspired by the likes of Steve Jobs. May we all stay hungry, may we all stay foolish!