Conde Nast Portfolio- Hedge funds, even at their peak of popularity, were regarded with considerable suspicion. They have taken a shellacking in the last few months as subprime tainted funds have folded or reported poor results, and “quant” strategies have failed spectacularly, due to extraordinary, allegedly unprecedented, market turmoil. Of course, the problem with that defense is that extraordinary turmoil seems to happen roughly once a decade.
Now even though much of this criticism of hedge funds is deserved, it tends to lump them all together, when they in fact employ a variety of strategies. Yes, quant and various favors of fixed income investing are on the list, along with event driven (the new term for merger arbitrage), global macro, emerging markets, and equity long/short, to name a few.
One strategy that may deserve a better reputation than it currently has is activist investing. Hedge funds, as well as some institutional investors (the giant California Public Employees Retirement System, or Calpers, is a leader) and individuals, ranging from old-style raiders like Carl Ichan to Harvard Law professor Lucian Bebchuk, buy shares in companies with poor governance practices, like pay way out of line with performance, and agitate for change, often via shareholder resolutions or trying to change the composition of the board.
