This September marks the 10th anniversary of the 9/11
terrorist attacks on the World Trade Center, a devastating
event that ushered in a series of terrible U.S. policy
decisions from which weve arguably not quite recovered.
Without the more than $1.2 trillion spent to finance the wars
in Iraq and Afghanistanand the deep political schism that
theyve wroughtwould the U.S. debt have been
downgraded last month? Would the Fed have kept printing money
to keep the economy and Wall Street afloat until it burst some
seven Septembers later? (And then there was more money to patch
that up, of course.)
Those of us who live in New York recall how fragile our
world seemed right after September 11, 2001. That perception
was often reinforced during the ensuing decadeas well as
this summer. But if ever there was a beneficiary of all the
uncertainty, it was hedge funds. Institutional investors that
saw their portfolios decimated between 2000 and 2003 began the
desperate search for yield that led them into the arms of hedge
funds, creating a $2 trillion industry.
Hedge funds proved a good choice: They survived the next
calamitous Septemberthat of 2008better than most
financial players. True, many didnt survive, but overall,
hedge fund returns didnt fall as much as the major
indices. The next September2009AR Magazine launched
in the belief that the institutional march into hedge funds
would continue and the industry would flourish.
Now comes September 2011. Hedge fund returns have been
paltry so far this year; the AR Composite Index gained a mere
2.2% through July. Some major funds have had trouble coming to
terms with the new political paradigm in our post-2008
worldand were either wrong about markets or overly
cautious. But as we report in our Armageddon Now!
in-depth analysis, the pessimism that kept hedge fund managers
from benefiting earlier in the year may soon pay off.
Investors will be watching. Since 2008, theyve been
judging hedge funds in large part by how they behaved during
the financial turmoil. Those who gated or side-pocketed
continue to earn investors ire. But for the first time,
those polled in our Hedge Fund Report Card (whose results are
in this issue) say their main concern in rating hedge funds is
performance. Really, its all about the money. Even the
now-defeated, now-deceased Osama bin Laden knew that much.