Hedge funds – as their name implies – are supposed to be multi-faceted investment vehicles for the very rich to become richer with minimal risk. Sometimes this goes wrong.
The hedge fund Amaranth managed to lose $5 billion last week, a sum that is surely greater than the gross domestic product of most third world countries. All done, apparently, by a 32-year old trader who happened to bet the wrong way on natural gas prices.
As I read about this, I found this amusing quote:
Amaranth's collapse, however, strengthens the sceptics, who share the belief of the great investor Warren Buffett who, after observing the lavish salaries hedge fund managers paid themselves, said these funds were no more than a compensation structure dressed up as an industry.
Not being one whose personal fortune (what personal fortune? 🙂 ) has been decimated by this latest bout of financial mismanangement, I could smile at that one.