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Some Like It Hedged

BNP Asset Management's Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices, he says.

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September 30, 2004

Leverage to Magnify Alpha: The Next New Hedge Fund Thing at Smaller Pequot

By Kathryn M. Welling

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Art Samberg is simply not going to be drawn into gossiping about former partner Dan Benson's run of ill luck in the market. Nor is he now - or has he ever been - inclined to bend an ear bemoaning their parting of the ways, much less the bursting of the tech bubble, which combined to put his erstwhile $15 billion hedge fund on a drastic diet. Nope. For one thing, Art was probably one of the least surprised in the investment world by the implosion of the Internuts. For another, it's just not Art to dwell in the past. His focus, as always, is like a laser on what he's building. And that's what Art, who still mans the helm at Westport, CT-based Pequot Partners, was quite happy to discuss when we spoke recently. -KMW

Right, all of a sudden record oil prices were no problem, man.

But there's no volume; it's all nonsense.

Oh, you noticed?

The volume of trading in ETFs, as a percentage of total trading volume, is through the roof. It's all an indication that people have found out that they don't know how to go long, and that they don't know how to go short, either. There are too many hedge funds. They are all terrified that they're going to have bad results, so they try to hedge themselves with ETFs. It has gotten to the point where they are even forcing people like me to do it, which is disgusting but true.

Do you mean all the fledgling hedge funds are to blame for this largely directionless season?

Yes, to some extent. Hedge funds might get a lot of bad publicity, but the reality is that they did a hell of a lot better job of protecting people's assets in 2000, 2001, 2002, than the long-only guys did. There's no denying that more money being invested in hedge funds leads to a different kind of market, but putting your assets into one might well be the most appropriate thing a fiduciary could do.

How can you say that?

I started my first hedge fund in '86, so it's been 18 years. And I've always been an equity long/short guy. In general, especially for the kind of stuff that we became noted for, which was dynamic growth investing, the wind was at our backs, without a doubt. But we did overcome challenges. We did well in 1998, and when the party officially ended in 2000, we had an up year in all our funds. In any environment, hedge funds are a better way to invest money - and in an environment where economic returns are being squeezed, to my mind, they are the only way to manage money. Why hedge funds have gotten so controversial can only be explained in terms of the fact that the business is still an embryonic, Wild West, industry in some ways. But it will grow, it will consolidate, it will mature, it will become institutionalized.

Do you disagree, then, with Barton Biggs' analogy about five fat horses doing very well drinking from an alpha pool - until their success draws a crowd, all trying to drink from that same small alpha pool?