PRIVATE BIN: John Key annoys local hedge fund managers

Hedge fund managers are the last people you’d expect new Prime Minister John Key to offend, considering he is a former investment banker wealthy enough ($50 million) to make NBR’s Rich List.

But it appears we should expect the unexpected with Mr Key, and incurring the wrath of fellow super-wealthy investors is no exception to that rule.

While in Peru for the Apec meeting, Mr Key made a comment that appears to have ruffled some feathers in the New Zealand Absolute Return Association, which represents local hedge fund managers.

“We can no longer afford to ignore the effect that the amount of risk that hedge funds are able to take through leverage that is arguably completely disproportionate to the real economy,” said Mr Key in his first speech since being sworn in as New Zealand prime minister.

NZARA chairman Anthony Limbrick was quick to deprive the story of oxygen, giving a diplomatic response to the prime minister’s hedge fund baiting.

“We’re waiting for further comments from the government regarding our industry and at the moment we don’t think we know enough to make a judgment on the position they’ll take,” he says.

It’s understandable Mr Limbrick doesn’t want to make a loud fuss, as hedge fund managers aren’t the most popular people around right now.

However, the NZARA may warrant more attention than it is getting in the media (none at all).

While local hedge funds are only worth around $1.5 billion, they are growing quickly and performing much better than the world average; New Zealand’s hedge fund index has risen by 15.8% so far this year.

And if the NZARA’s stated goal of becoming “the Switzerland of the South Pacific” ever comes to fruition, our prime ministers of the future will have to be much more careful about offending hedge fund managers.

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11 Comments & Questions

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JK spoke the truth Its these bozos and clip joint artists that we the hard working taxpayer are now having to clean up after.

Fact is these wide boys clever clogs were either out of their depth or a bunch of crooks or both

My advice to them is shut up and keep your heads down lest they be shot off

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GD, You are wrong. It is the Banks that got us in this mess not the hedge funds. The banks started acting like hedge funds taking hugely leveraged positions. Hedge funds aren't big enough to bring down an economy, hence the Government will let them fail. We can also do without hedge funds, we can't do without banks. Banks are big enough to take down a country and hence the Government has no choice but to support them. In this position they must act more responsibily and if they can't, they must be regulated so they do. Hedge funds should never be regulated.

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john Key or JK , is the man best prime minister nZ HAS EVER HAD !! helen clark is finallly gone and now JK can get on with his FACIST regime , GO JOHN KEY

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Whoever GD is they clearly don't have a clue about anything they are talking about in relation to the financial crisis. The Hedge Fund industry should actually be an industry standard on how to mitigate risk, something the investment banks/houses of the world could learn a thing or two from. Many hedge funds are actually contrarion meaning they bet against the market when it is bullish and mantain bearish positions in the good times. In fact Paul Simons and John Paulson were up 2 and 20 Billion respectively in the heart of the crisis. Though some hedge funds failed they did not need tax payer bail outs whereas IBs did so don't point the finger at an industry you know nothing about! And sorry RG but I doubt you are hedge fund manager, in fact the lavish life style portrayed in various financial chronicles is quite misleading, e.g. Paulson still catches the Bus to work...

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Both wrong, who or what got us into the credit squeeze? Borrowers, people who borrowed more than they could repay.
Why, because of the artifically low interest rates and the crazy abilty to transfer pre tax income into tax free capital gain via property while at the same time writing off holding costs.
Who fixes the problem? Savers
Who gets penalised? Savers because savers wear the low interest rates, getting a return less than true inflation.
Who would bother saving cash?

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The root cause of this whole crises lies at the feet of the central banks of the world, our included. They have been running the printing presses non-stop since 9/11 attempting to inflate the world out of trouble (look at the increase in the M3 for countries globally, the USA even stopped publishing their figure as it was such a joke); in doing so they have created speculative bubbles in nearly all the worlds assets which are now being burst. Imagine a balloon being popped, and trying to stop the air from escaping...that is what we are seeing now.

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I'm a hedge fund manager in Auckland, and to be honest I'm too drunk on Veuve Clicquot during the majority of the workday to give a flying hoot what John Key has to say about the industry, let alone comprehending how many peoples money I'm risking (What credit crisis?) As long as my 3 european sports cars are sitting in the carpark downstairs, and my 25 year old wife is waiting naked for me when I arrive home to my $10million Remuera mansion, I really couldn't care less.

If I could just decide which helicopter to buy so I don't have to drive the whole 1 hour to get to my pauanui holiday home each weekend, so many choices...

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Helicopters are so 90s... you poor thing. Auntie Helen probably had a rescue package ready for you...

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25 year old wife is waiting naked for me when I arrive home i
hope the viagra can lengthen the size of your willy

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The real cause for the credit crisis was irrational property investment not hedge funds. Why irrational? Because since the 80's population growth in the developed world has stopped and real incomes have been steadily decreasing.
Population, real incomes and the availability of money drive property values. Artificially low interest rates (especially in Japan) have driven prices up, but the other fundamentals don't support this rise.
Everything since 2000 has been the last peak in a property market that has been over cooked for the last twenty years.
I knew it was all over when property investment advisors started running seminars and mainstream TV started running property investment shows at peak-time. Not everyone can be a property investor, but the media and advisors were telling us that we don't just have to own our own home we can profit off it as well by buying other properties.
The net effect of all this is that while some investors have done well, most people who just wanted to own their own home are now deeply in debt. This is going to have a long lasting negative effect on our economy.
Unfortunately, in NZ the tax payer is still subsidizing residential property investments due to the capital gains tax loophole, via which a property investor with 5 or 6 rentals and a low six figure gross income can pay less tax than someone on $50K per year. This has to end.
Meantime, innovative businesses can't get venture capital in this country because it's all tied up in the property market. Hence they go overseas.
The real estate industry would have people believe that property is still a good investment and prices will keep going up. They always say that because the more the property costs the more they get paid. Other commentators claim NZ will not be hit by the property downturn as much as overseas because our lending policies were more responsible. Both groups are wrong. For better or worse NZ is part of the global economy. A significant proportion of the recent property boom was fueled by foreign investors and down payments on property of 5% or less have been quite common here for some time. Deflating property values will both encourage repatriation of overseas money and erode owner equity resulting in further deflation. In my opinion this has only just begun in the NZ market.

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Arthur, I presume you are reffering to NZ's tax regime and as such I agree with you that it is inconsistent and contributed to the property bubble in NZ. However the credit crisis is a result of problems in the banking industry in the USA, not NZ. The crisis is a result of banks lending 100% to people that couldn't afford it and could also walk away from the property very easily if they wanted too. If was a free option for the borrowers, unlike in NZ where it is much more difficult to walk away from housing debt obligations. It is not the borrowers fault, they actually acted rationally. The banks didn't as they didn't take into account the risk correctly. They packaged the mortagages up into complex structures and sold them to people tha didn't understand them. They then have the audacity to ask the tax payers to bail them out. I feel sorry for the US tax payers.

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