Stephen Vines

The View | Dear hedge fund investors: you’re probably not the next George Soros

Stephen Vines says the reason hedge fund managers’ profits continually grow, even as the hedge funds themselves consistently fail to deliver, is that investors tend only to remember the highly publicised cases of ‘money gods’ who netted huge sums in unusual circumstances

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George Soros famously (or infamously) made a killing shorting the British pound on “Black Wednesday” in 1992, which resulted in Britain’s exit from the European Exchange Rate Mechanism. Photo: AFP

Stephen Vines

Published: 2:02pm, 13 Jun 2018Updated: 10:57pm, 13 Jun 2018

Here’s a thing: hedge fund managers’ earnings are soaring while hedge fund performance is heading south; indeed they’ve been delivering pretty dismal returns for at least 16 years.

We’ll get back to figures soon but let’s start with the obvious question of why this perverse correlation exists, because it makes no sense.

Hedge fund managers, a group generally untroubled by the demands of modesty, have a number of superstars in their ranks and investors are attracted to them like fleas to a dog.

You know their names – people like George Soros, who is credited (or should that be vilified?) for breaking the Bank of England in 1992 with a trade that made US$1 billion for him and was the killer blow to Britain’s membership of the European Exchange Rate Mechanism.

Then there’s John Paulson, who made a massive bet against the subprime housing market in the United States in 2007, and later decided to prolong the mayhem he caused by becoming a key economic adviser to Donald Trump’s 2016 presidential campaign.

The eye-watering sums of money earned by people like Soros and Paulson tend to be remembered rather better than the fact that both men have also made pretty impressive losses, but this is the way of the investment world, where success is recalled more readily than failure.