Hedging bets

The masters of the universe try a bit of image management

Bankers can take a breather. There’s a breed of financier disliked even more than them: hedge fund managers, the socalled masters of the universe, who operate in the twilight of the financial system, allegedly manipulating markets and destroying companies.

Even hedgies are shocked at how badly they are viewed by the public. I know this because Jack Inglis, head honcho of the global organisation representing most of the world’s $3trn (£2trn) hedge fund industry, volunteers the information.

In fact, Mr Inglis tells me that the Alternative Investment Management Association (Aima), the trade organisation he runs,was so concerned about its awful public reputation that it commissioned independent research to discover why.

As they say, be careful what you wish for: the poll of 1,600 people – half in the UK and half in continental Europe – revealed that hedge funds managers come bottom of the entire financial services industry. Worse than bankers, mortgage brokers and life insurance salesmen.

So why do people hate them so much? Well, says Mr Inglis, taking the smallest sigh: “It’s a good question. And it’s one we spend a lot of time trying to analyse and why we commissioned the polling.”

The reasons given were threefold: “The big negatives were that hedge funds avoid tax and that they manipulate markets and engage in short- selling which most of the public seems to think is an evil activity.”

Yet more devastating was that Aima’s research showed most people polled don’t know their hedge fund from a garden fence – don’t have a clue what they do and certainly don’t know that their pensions are invested with them.

Put simply then, what do they do? “I tend to think of hedge funds as modern asset management. There are many different investment strategies among them, and they use a wide variety of tools and techniques to produce a better set of risk-adjusted returns ... than traditional benchmarkfocused asset management.” (The hedging bit is that these funds use sophisticated tools such as leverage and derivatives to mitigate against investment risks.)

Mr Inglis acknowledges that the industry’s image has been hit by “wealthy individuals after octane-charged high risk, shooting the lights out and boasting about their wealth at cocktail parties”.

But he adds: That may have been true some time ago. Not now. Today, two-thirds of all investors in hedge funds are pension funds and other institutional investors. So hedge funds are of great value to the UK economy.

“They provide more than 40,000 jobs in the UK ecosystem alone, bring liquidity to markets, provide alternative investment to many small and medium-sized enterprises who can’t find finance elsewhere, and have a positive impact on the companies in which they invest.”

That’s why the bad publicity matters so much, he says. “You could ask why do the firms care about their reputation? After all, they have been very successful and grown hugely. But they do care personally about their image – and they don’t want to be used as a political football in the court of public opinion.

“Unfortunately, politicians are influenced by what’s written in the media and there is a real fear that rules will be written to appease voters.”

Mr Inglis knows all too well what it’s like being at the sharp end of post-crash criticism; he was a Barclays investment banker and hedge fund manager. He describes himself now as more of a “humble beater” on the shoot, rather than poacher or gamekeeper, and one determined to flush out the facts.

It’s ironic, then, that Aima has its global head office on Fleet Street, where we meet– barely a stone’s throw from the old home of newspapers. But it’s a handy place at which to set the record straight.

“Let’s start with tax,” he says. “In 2014 the industry paid more than £4bn to HMRC. Second, it’s not correct that hedge funds manipulate markets. It’s true that when the industry first started, there was a certain Current job: chief executive of Aima Born: “Christmas Eve, a long time ago” Education: Rugby School; economics degree at Cambridge University Career: managing director at Barclays, 2010-2014; chief executive of Ferox Capital, 2007-2010; managing director at Morgan Stanley, 1991-2007; banker at HSBC/ James Capel, 1983-1991 Favourite book The Magus by John Fowles

Film: Local Hero Car: 1968 Series 11 Land Rover opaqueness and lack of transparency, so I guess you got a natural distrust of what they were doing.

“Now hedge funds are tightly regulated by the Financial Conduct Authority and other regulators. And I can’t think of a single asset manager who has been accused of market abuse. Compare that with other markets, like in the Libor and foreign exchange rigging cases. Where is the evidence

Music: The Clash. Typical day:

“Fortunately, the early-office arrivals in the dark from my banking days are just a memory as we open for business around 9am. So I try to get a gym session in before or some exercise via the commute on a sedate ‘Boris Bike’ to work. Being a global organisation, the mornings are best to keep in touch with our Asian offices, while the tail-end of the day is for those in the Americas. Travel makes up a large part of my schedule and I am often attending and speaking at one of the 200 or so events we hold around the world each year. A day well spent is when I have learnt something new and met interesting people.” that they are manipulating the markets?” Short-selling may be harder to defend – depending on your view. “Hedge funds do take part in short-selling but it’s a perfectly legal activity. The question to ask is whether short-selling is a bad thing. We would argue it is not.”

On the contrary, he says that if hedge funds short the stock of a company, they are showing something is fundamentally wrong. “That has to

They do care about their image – and they don’t want to be used as a political football in the court of public opinion