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Money managers under the microscope

Hedge funds “a good thing”, says Taleb

November 3, 2009

Regulators are going after the wrong target by trying to impose stricter rules on hedge funds, according to Nassim Nicholas Taleb, high-profile author of credit crisis hit The Black Swan.

rtxnzh6Taking a decidedly negative view of banks, Taleb told the Hedge 2009 conference in London today that a bank is¬†essentially “a utility with a compensation scheme”, which the public has to bail out if it fails.

In contrast, “hedge funds are a good thing” (not a phrase that is heard very often).

With the possible exception of LTCM, taxpayers haven’t had to bail out hedge funds which, when they have failed, have generally done so quietly with relatively little effect on the general public, he says.

“They’re a great way for risk to be diversified … and they have the beauty that they’ve learned to fail fast. People in the street know about Lehman, but they don’t know about (which) hedge funds (have failed).

“The model of transferring risk to hedge funds needs to be favoured by governments. Now it’s being hampered by goverments, which are cracking down on hedge funds, not banks. I don’t understand.”

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