Most insightful hedge fund letters of 2008

Posted by Josh Friedlander | 4 Comments

To my mind, the best hedge fund letters of 2008 were not the most contrite, but those that best conceptualized the financial crisis. Among all letter writers, Michael Lewitt of HCM was most frequently worth reading, but I’ve chosen just one of his letters here, because it so clearly demonstrates his grasp of the issues BEFORE most of the fallout had occurred.

HCM
Lewitt’s September 1 letter is prophetic: “It is becoming increasingly clear to HCM that the financial system is entering a new and prolonged phase of the credit crisis.”
- recall that this letter (and others like it) appeared before the fall of Lehman, etc.

Lahde
The most hysterical letter was Andrew Lahde’s, which beyond touting the relative harmlessness and benefits of marijuana, made a great point about the soullessness of Wall Street’s manic culture of greed. Andrew Lahde’s Farewell. “I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.”

Balyasny
Dmitri Balyasny made a point that has not been raised anywhere else (that I can recall): that the 2002-2007 bull market was one that favored a fundamentally-driven investment strategy and, as a result, a whole class of investors began to think of themselves as geniuses because their bets went right even though they knew little about money management or timing. Picking good stocks was enough. Not anymore. “We view our job as generating attractive returns with reasonable risk – running a true “all-weather” fund. We do not view our job as practicing some particular brand of investing such as, buying good companies and selling bad ones, or having to maintain some sort of market exposure.”

Bass
Finally, Kyle Bass, who made his investors, oh, a few hundred percent return on their investment last year by shorting subprime, and who predicted much of the current destruction, and was deliciously bearish in his October 14 letter.
“THE WORLD HAS LOST HALF OF ITS EQUITY MARKET WEALTH ($29 TRILLION) since last October. The negative wealth effect will be DEVASTATING.”

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