SHAMSUL GHANI (ghams_ghani@hotmail.com)
July 28 - Aug 03, 2008

The spiking oil and gold prices, the destructive global food inflation, the volatility of world stock and currency markets, all owe much to the modern economics that has created such monsters as hedge funds. These monsters are not controlled by some Martians, rather they are managed by a group of exceptional creatures of this lesser planet, with an undying appetite for money and more money - the hedge fund managers, who have a license to kill at will. As if the generation of imaginary wealth through interest-based banking system was not enough to disturb the global economic peace, the newly designed diabolic product of hedge fund operations has been launched to further torment the already suffering poor nations. Mostly US-based, these remote-controlled financial bombshells take by storm the markets of developing economies to leave behind gory and mutilated bodies of local investors besides causing irreparable damage to the targeted country's economy. Asian economies are their happy hunting grounds. The managed destruction of Malaysia's booming economy through currency market operations is not a dim and distant memory. Their lust for quick and huge money knows no bounds and they sometimes organize surprise attacks on developed and strong economies as well. George Soros, the Hedge Guru, almost broke the Bank of England by targeting Pound Sterling through short selling. The superheroes of this dirty business are George Soros, Julian Robertson, Michael Steinhardt, Stanley Druckenmiller, Luis Bacon, Paul Tudor Jones II, Bruce Kovner and Arthur Samberg. This list of the so-called luminaries is followed by an array of talented second-liners with satanic abilities to influence the global finance and economic events. They are categorized as Traders, Stock-Pickers, Distressed Investors and Quantitative Investors. The "top dog" list includes: Steve Cohen of SAC Capital Advisors, Stephen Feinberg of Cerberus Capital, David Tepper of Appaloosa Management, Eddie Lampert of ESL Investments, Kenneth Griffin of Citadel Investment Group and Michael Novogratz of Fortress Investment Group. The "brainiacs" list includes, James Simons of Renaissance Technologies, David Shaw of D.E Shaw & Co, Clifford Asness of AQR Capital Management, Ray Dalio of Bridgewater Associates and Mark Carhart of Goldman Sachs Asset Management. The "bad boys" list includes Daniel Loeb of Third Point, Thomas Hudson of Pirate Capitals, Israel Englander of Millennium Management, Warren Lichtenstein of Steel Partners and Barry Rosenstein of JANA Partners.

The talent level of these managers can be gauged from the fact that James Simons of Renaissance Technologies, a former math teacher and now a quantitative investor, uses top-secret algorithms to make computer-based investment decisions and employs only Ph.D.s and over as his work force. He charges a fee of 5 & 44 - meaning 5 per cent commission and 44 per cent share in profit - and has a net worth of $4 billion.


Hedge funds are highly leveraged sums of money used in high-yield, high-risk speculative activities. While mutual funds make use of pooled equity money in prudent investments with a long term view, hedge funds behave like a dynamo that converts investment energy into quick and hefty returns. Mutual funds are calculated, passive investments; hedge funds are highly volatile and dangerously active investments. Hedge funds are exclusive domain of the rich who are prepared to limitlessly risk huge chunk of their wealth. No legislative checks are applied to funds having up to 100 investors in their pool. The minimum per investor limit could be as high as $2.5 billion. Hedge fund managers donít believe in nominal returns. They set a high-yield target to be able to sufficiently compensate their risk-seeking investors and pay off the borrowing cost, in case of leverage. They are allowed a "no holds barred" type investment strategy. They can short sell, make use of derivatives (futures, options, warrants etc.), can target a distressed company with high asset value, for take-over. They can enter at will any market including but not limiting to stock, currency, commodity, metal and real estate markets. "Speculation" is the key word to them. Be it the fake build-up of oil prices, the sharp spikes in the world commodity, food and gold prices or the crashing currency and stock markets, the overt and covert involvement of hedge fund managers can not be ruled out.

In 1999, the global size of hedge funds was estimated at $200 billion which later on swelled to a staggering $2 trillion by March 2007 when around 9000 hedge funds with 350 of them having a worth of more than dollar one billion were operating. Besides enjoying unparallel financial clout, the hedge fund managers are seen power brokering through political donations, rubbing shoulders with the society elites through philanthropic moves and lavish spending on art pieces. Yet, most of them are secretive and averse to limelight, talking nothing or very little about their business. Common people know little about the inner world of these wealth accumulators. They know that George Soros has amassed immense wealth, enough to influence world finance, and that is all.

According to Cliff Asness of AQR Capital, "Hedge funds are investment pools that are relatively unconstrained in what they do. They are relatively unregulated (for now), charge very high fees, will not necessarily give your money back when you want it, and will generally not tell you what they do. They are supposed to make money all the time, and when they fail at this, their investors redeem and go to someone else who has recently been making money. Every three or four years, they deliver a "one-in-a-hundred-year-flood."


Which is more lethal, the destructive missile power or the speculative-money power? Malaysia's Mahateer Muhammad knows it well. For our part, we are threatened by both. We leave threat number one to country's armed forces that are best qualified to deal with it. Our economic managers need to take cognizance of the impending threat number two. The watchdogs should be alerted to sniff out the presence of hedge funds in our already battered markets. Our weak currency, nose diving stock market and hyper-inflationary food market can not bear the brunt of speculative engineering. In case we are to face such eventuality, then, are we technically and professionally equipped to put up a fight?