Martin Vander Weyer’s Any Other Business
Hedge funds can be accused of many different sins, not least because they operate in many different shapes and forms across the investment universe. As a label, ‘hedge fund’ is so loosely generic that generalising about the sector is almost as pointless as trying to corral it with tighter regulation, as EU finance ministers have been doing this week. Some hedge funds pursue, with brilliant results, the contrarian hunches of individual fund managers. Some cheat by trading on insider information or false rumours. Some are ‘long-only’, meaning that they buy and keep things that they expect to appreciate in value. Some are habitual short-sellers, seeking to profit from things they expect to depreciate. Few claim they do what they do in order to make the world a better place. But likewise few would accept that to profit by betting on the impending collapse of a company or national economy is either unethical or (if it happens to be your own economy) unpatriotic. Hedgies might accept that their trading contributes to volatility and thus to bouts of market panic, but no one seriously accuses them of creating the financial crisis: that was the work of ill-managed banks and incompetent governments. Furthermore, hedgies point out that their sector is fiercely self-regulated in a Darwinian sense: in the past two years, hundreds of weaker funds have gone bust, and not one of them asked for a government bailout.
So the new EU directive on hedge funds is misguided — it is damaging to London where most of the hedgies live, and stirred Boris Johnson to put up a robust fight against it. But George Osborne chose not to make a stand on it at his first Ecofin meeting on Tuesday. The directive seeks to enforce greater transparency, to restrict funds’ ability to borrow, and to make it more difficult for them to raise money from European investors. But in reality it is little more than a German-led attempt to deflect as much blame as possible for the subprime crisis — in which some of the worst offenders were state-backed German banks that invested heavily in toxic US paper — and the evolving European sovereign-debt crisis.
The directive may well hasten the exodus of hedgies from London to Zurich or Geneva that I wrote about here last autumn, but most funds are already domiciled in, and able to trade from, havens far beyond the reach of Brussels — so highly unlikely to change their patterns of trading. If that means they will return with new vigour (alongside investment banks that have vastly more capital to deploy than any individual hedge fund) to the very Anglo-Saxon business of trashing the government bonds of southern euro members until the point at which the recent ‘rescue deal’ can no longer hold the single currency intact, perhaps it will teach EU leaders not to waste time grandstanding when they have such massive problems of their own to address.
Rising from the ash
For every new problem thrown up by modern life, there’s an entrepreneur somewhere beavering away to create a solution. Last month I introduced you to ‘absence management’ as the smart response to an epidemic of public-sector absenteeism. This month’s problem is volcanic ash, and the possibility that its plumes and drifts could disrupt air travel in unpredictable patterns for months or years to come. That’s mildly irritating for holidaymakers (I’m writing from the Dordogne, where we talk of little else), but seriously disruptive for international business. Combine the ash risk with security alerts, pandemic scares, carbon-footprint guilt and soaring air fares, and there’s ample reason to cancel any business trip — especially for senior American executives who are habitually nervous passengers and who typically spend $1,400 a day when they travel. The answer is to be found in ‘collaboration services’, which have nothing to do with the sort of collaboration engaged in by Captain Renault, the Vichy French police chief in Casablanca. The phrase refers to the technology of virtual conferencing, incorporating techniques such as ‘webinar whiteboarding’ — which might sound like a Bosnian torture but is in fact a software device that enables remote participants to scribble on a shared electronic board. Cisco Systems, the Californian dotcom giant which is the market leader, foresees a multibillion dollar industry emerging from the reluctance of chief executives to fly: why bother, when you can fire your overseas managers from the comfort of your own desk, or the deck of your yacht?
Cisco will fit you out with a $200,000 ‘Telepresence’ virtual boardroom; BT and others provide quick-fix internet-conference facilities, and all sorts of new ventures are springing up to exploit and link technologies that are already available. C-Port Solutions of Atlanta offers a piece of kit like a flat-screen television mounted on a trouser press that can beam your chairman to the boardroom table from another continent; Sussex-based Big Ideas Inc will set up an entire multi-event online marketing conference for you, free of any constraints of physical space or movement of people. The Eyjafjallajökull monster can belch away to its heart’s content while global business continues as usual — all except airline business, that is. Perhaps Willie Walsh of BA should hedge his bets by investing heavily in the ‘collaboration services’ sector.
Betting on cheddar
Good news for readers who enjoy a tasty dabble in the derivatives markets. CME, the combined Chicago and New York commodities exchanges, has introduced cheese futures contracts. These will enable consumers of industrial quantities of cheddar, mozzarella and gouda to lock in prices and smooth out market fluctuations — a particular benefit to the likes of McDonald’s and Domino’s Pizza. You might think cheese is too unstable a substance for any buyer to have confidence that a consignment for delivery three or six months ahead will still be edible when it arrives. Remember Lymeswold, the blue cheese invented by the Milk Marketing Board, of which no two batches ever reached supermarkets in the same condition? But that misses the point of derivatives markets, in which the thing traded does not necessarily exist at all, but if it does, you rarely expect to take physical delivery of it. If we’re all going to be on hard rations as the sovereign-debt crisis deepens this autumn, however, stockpiling the sort of cheese that improves as it matures could be a shrewd strategy. If I were a hedgie, I’d go short-euro-long-cheddar: what could be more patriotic than that?
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