DealZone

Raj Rajagopal will graduate from business school in May and he’s currently looking for a job. But don’t expect the Cornell University student to get a call anytime soon from Warren Buffett.

That’s because Rajagopal recently put together a report in which he recommended selling shares of Buffett’s Berkshire Hathaway in part because “adoration is not an investment strategy.” In short, Rajagopal said anyone who sinks money into Buffett’s empire is chasing past returns and buying shares “at the tail end of his career.”

Rajagopal’s 15-page presentation is making the rounds on Wall Street and being circulated by some hedge fund managers who aren’t particualy big fans of the so-called Oracle of Omaha.

The presentation points out some common criticism of Buffett’s company, including the failure to develop a clear succession plan and the firm’s seeming reliance on a handful of individuals to make investment decisions.

But the report prepared by Rajagopal, who was a former Wall Street analyst according to his blog, also accuses Buffett of being a bit of a hypocrite on the subject of derivatives. He notes that Buffett famously decried derivatives as a “financial weapon of mass destruction,” yet continues to use them as part of Berkshire’s investment and hedging strategy.

Some investors may not be fully aware of the risks they face as career-conscious hedge fund managers plump for strategies that build a convincing-looking track record but occasionally backfire badly.

According to a paper by Yale academic Hongjun Yan, hedge fund managers are far more likely to choose so-called 'nickel' strategies than 'black swan' strategies, even if returns are ultimately lower and they risk the occasional huge loss.

Nickel strategies are -- rather like the contrived image of picking up nickels in front of a steamroller -- those that yield small returns most of the time with the occasional disaster.

It may not have been a massive surprise, but ECB President Jean-Claude Trichet had an unwelcome message for hedge fund managers today.

The current crisis is, apparently, "a loud and clear call" to roll out regulation to all important market players, "notably hedge funds and credit rating agencies".

For those hedge fund managers who felt, perhaps with a degree of justification, that their industry had been relatively blameless in precipitating the current crisis, that call may have been somewhat quieter and more muffled.

It was always unlikely that a letter of advice was going to change the mind of maverick hedge fund manager Hugh Hendry.

And in his latest letter to investors, Hendry has smartly rebuffed any attempt to 'save' him from his bond investments.

The letter in question -- Gregor.us's monthly note, entitled "Saving Hugh Hendry" -- praises the Eclectica co-founder and CIO as a "brilliant and colourful" hedge fund manager who saw the coming storm and took cover well in advance.

There seems to be an endless wave of bad news hitting the hedge fund industry at the moment -- gates and suspensions, record poor performance, the Bernard Madoff scandal and so forth -- but there are still one or two reasons to be positive.

According to a survey of institutional investors by alternative assets data group Preqin, conducted in January (and therefore after the alleged Madoff fraud came to light), only 8 percent said they were no longer confident about hedge funds and would reduce investments.

By contrast, 26 percent said they would be increasing their allocations this year.

The latest update on funds of hedge funds (FoHFs) performance arrives from Fitch Ratings -- and it makes for an unsurprisingly sober read.

We perhaps know already that 2008 was the worst year ever for FoHFs, and that cumulative losses reached an all-time high as the year ended with a Madoff-shaped bang. Fitch also raises a fear that managers have shared after imposing redemption restrictions on clients wanting to stash their cash under the proverbial mattress:

The year has witnessed a wave of managers implementing restraints on clients’ access to their assets, thus putting again into question the business and sales model of the industry

Tuesday's grilling of UK hedge fund executives is likely to create plenty of noise but produce little in the way of new rules.

While media-shy TCI founder Chris Hohn and others will face tough questions from the Treasury Select Committee on financial stability, short-selling and other issues, it nevertheless seems that the pro-legislation lobby's position may be weaker than it has been in recent years.

For one thing, many hedge funds simply do not have the financial clout -- and therefore carry the associated risks seen by some politicians -- that they once did.