David Craig

Hedge Fund Land seems to be in disarray. Investment losses keep mounting up. It would not come as a surprise to hear that fully 70 per cent of these often complex and sophisticated offshore investment vehicles have percentage losses running into double figures over the last year, with a large number down by over 25 per cent. This all seems to point conclusively to the fact that the majority of practitioners are unable to cope with market conditions and have failed to remember Investment Rule 1.01 for confronting losses: ‘Get out, stop losing and live to fight another day.’ The fact that most funds are losing should not be a cause for complete surprise, however. This brutal market has been nigh on impossible to stand up to.

David Craig, a pioneer of the British hedge-fund industry, recalls lessons learned from John Paulson, the New York investor who topped last year’s global earnings league New York in the mid-1990s: my long-time investing partner Richard Atkinson and I were in the city seeking out people with whom we might co- invest. We had run our own fund — reputed to be the first hedge fund in London — for 11 years, and had progressed to a stage where we thought we were getting good at this sort of talent-spotting. Nonetheless, we were particularly wary of getting fleeced by second-rate opportunists, or worse, fraudsters. We could only avoid that by rigorously counselling with a network of in-the-know types who could help with our due diligence processes.