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Hugh Hendry’s vision may be apocalyptic but he’s still the acceptable face of hedge funds

July 28th, 2010

The Scots hedge fund manager Hugh Hendry has lately become something of a media darling thanks to his sheer outspoken-ness. But he also puts his clients’ money where his mouth is, often making them handsome returns, and has some genuinely interesting things to say about the outlook for the global economy.

Hendry founded Eclectica Asset Management with some fellow refugees from Odey Asset Management in 2005. According to a recent profile piece published in the New York Times, he is a throwback to the 1970s and 1980s, to the heyday of George Soros’s Quantum Fund, when hedge fund managers were free-thinkers who dared to make big macroeconomic bets.

Among Hendry’s current batch of big ideas are that the euro is doomed, that China is headed for a spectacular fall, and that President Barack Obama will fail. On the latter point he memorably told the New York Times:

“If there was a way to short Obama, I would.”

Like Jim Chanos, president and founder of US hedge fund manager Kynikos Associates, Hendry believes a crisis is looming for the Middle Kingdom. He likens the country to the Starbucks chain of coffee shops: very good at rapid growth but less good at capitalizing on that. The main issue, says Hendry, is the country’s massive credit bubble and that lending has been channelled into unproductive projects.

He told Bloomberg in June that China’s 13.6 trillion yuan ($2 trillion) of new lending since January 2009 eclipses the economies of South Korea, Taiwan and Hong Kong combined and is “unprecedented in 400 years of economic history.”

Eclectica’s economic commentary from May 2010 included pictures of Chairman Mao and lyrics from the band Gorillaz. However the overall message was that Hendry sees hyperinflation ahead, as Western nations struggle to pay off their massive debts via “worthless fiat currency”. However, for this to occur, he argues that we first need to experience a significant deflationary event.

Along with his co-fund manager Espen Baardsen, a former goalkeeper with Tottenham Hotspur, Hendry is devising ways to bet on a Chinese collapse. One is to buy options on some 20 companies in international markets that will profit from “a dramatic collapse” of China’s growth, he told Bloomberg in May.

Eclectica correctly predicted that Greece’s financial travails would harm the market for German bonds. But the hedge fund manager lost money betting on European sovereign debt in the first quarter of 2009.

Hendry has made some memorable appearances on television. In February 2010 he appeared on BBC Two’s Newsnight alongside Professor Joseph Stiglitz. In a debate about the future of the euro, Hendry cheekily interrupted the Nobel laureate saying: “Hello, can I tell you about the real world?”

He went on to slam Greece as “a cheats’ charter… [which had built up] an unsustainable debt burden” and that the only solution was “forgiveness” of its debt in the shape of a “haircut”, or a default or national bankruptcy.

The episode became a minor  YouTube hit with some 71,000 viewings so far. Nothing compared to the likes of Susan Boyle’s first outing on Britain’s Got Talent (45 million) viewings and Skye-born stunt cyclist Danny MacAskill‘s 19 million. But still an impressive number for anything as immaterial as economics.

  • To read this entire post on QFINANCE click here
  • To see Hugh Hendry’s take on the accountancy profession, watch this short clip from the BBC’s The Bottom Line click here

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