Stratfor
Louis M. Bacon is the head of Moore Capital Management, one of the
largest and most influential hedge funds in the world. Last week, he
announced that he was returning one quarter of his largest fund, about
$2 billion, to his investors. The reason he gave to The New York Times
was that he had found it difficult to invest given the impossibility of
predicting the European situation. He was quoted as saying, "The
political involvement is so extreme -- we have not seen this since the
postwar era. What they are doing is trying to thwart natural market
outcomes. It is amazing how important the decision-making of one person,
Angela Merkel, has become to world markets."
The purpose of hedge funds is to make money, and what Bacon
essentially said was that it is impossible to make money when there is
heavy political involvement, because political involvement introduces
unpredictability in the market. Therefore, prudent investment becomes
impossible. Hedge funds have become critical to global capital
allocation because their actions influence other important actors, and
their unwillingness to invest and trade has significant implications for
capital availability. If others follow Moore Capital's lead, as they
will, there will be greater difficulty in raising the capital needed to
address the problem of Europe.
