It is precisely this thinking and attitude that no matter what happens that encourages reckless risk-taking by investors, whether they hedged or not. The mentality is buck passing and let the taxpayer pay for any excesses. Those arguing for the regulation of hedge funds see a repeat of the same mistakes over time, as exemplified by one of the alumni and founder of the LTCM debacle, John Meriwether. After almost a decade hence, his new fund JWM Partners is 26% down as the latest year-to-date figures show. Another LTCM alumni, Myron Scholes, managing another fund called Platinum Grove Asset Management is presently down by some 12%.
A more recent casualty is Kirk Wright, 37 who committed suicide in jail while awaiting sentence. He was an ex-fund manager convicted of mail fraud, securities fraud, and money laundering charges with the collapse of his International Management Associates based in Atlanta. He faced up to 710 years in jail and fined US$16 million. Instead of investing the monies he got from investors, it was spent on luxury items such as luxury apartments, expensive jewellery, sports cars, and his own US$500,000 wedding! If investors had done a modicum of investigation, they would have found out immediately where their funds went.
When the PWG finished its report on some recommendations for the hedge fund industry, one of its top suggestions is to increase the limit for accredited investors to qualify for inclusion and acceptance into a fund. The intent is to let only those who have the wealth invest in these hedge funds and have the capability to absorb losses. The overall recommendation is for self-regulation as the best solution to an industry that is rife with frauds and other anomalies but has vigorously resisted attempts to bring it under some control.