Why Hedge Funds Are Safe—And Why Women May Be Their Future

In the throes of the financial crisis of 2008, novelist Tom Wolfe was asked where the downturn left his Masters of the Universe—the iconic testosterone-driven magnates of Wall Street featured in "Bonfire of the Vanities."  His answer: "In Greenwich, Conn., mainly. The hottest, brightest, most ambitious young men began abandoning investment banking in favor of hedge funds six years ago."

Secretive, obscenely lucrative and highly leveraged, hedge funds are surrounded by mystery and rumor.  They’re run by small, reclusive and male-dominated staffs equally competitive and eccentric.  They dump tidal waves of capital into an investment in the morning, only to pull out in the afternoon. Working for them is the quickest way to become a billionaire.  Their collapse might be our next great financial crisis. 

To learn more about hedge funds, Big Think spoke with Sebastian Mallaby, a senior fellow in International Economics at the Council on Foreign Relations and author of "More Money Than God: Hedge Funds and the Making of a New Elite." He told us that it's a misperception that hedge funds are riskier than other kinds of economic vehicles.

"I believe that their leverage of two or three times, on average, makes them less risky than lots of investment banks, which before the 2007-2008 crisis were leveraged more like twenty-five times, or more," said Mallaby. "Also, hedge fund managers tend to keep their own money in the fund.  They have an incentive not to lose it, to worry about risk.  And so they came through the crisis of 2007-2008 really quite well.  Hedge funds were up in 2007 on average by ten percent.  In 2008 they were down, but down only half as much as the S&P 500 Index. They weathered the storm better than the others because they have the right incentives to care about risk management.”

Mallaby also spoke about why there are so few women in the field, saying that he didn't quite know why the field has lagged behind other professions in gender integration, but that the tide may be turning.

“The hedge fund business is basically a knowledge-intensive business," said Mallaby. "It is also quite emotionally intensive because it is stressful to take all these risks.  If you look at college enrollment in the U.S. you see that girls now outnumber boys.  And so most knowledge industries going into the future should have a very high representation of women, and possibly even a preponderance of women.

"I was discussing this with Chrystia Freeland, Editor-at-Large at Thompson Reuters, who herself is an extremely successful professional woman, and she asked the question, ‘Is it that women have less of a risk appetite?' The implication of the question was: 'Is the willingness to take risk some kind of testosterone-linked human characteristic?' I’m not willing to go there."

What do you think?  Are hedge funds an over-leveraged fiscal time bomb?  Are women their future?

The full interview including Mallaby’s “Five Game-Changing Hedge Funds” will be published Friday, July 9th.

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Scientists study tattooed corpses, find pigment in lymph nodes

It turns out, that tattoo ink can travel throughout your body and settle in lymph nodes.

17th August 1973: An American tattoo artist working on a client's shoulder. (Photo by F. Roy Kemp/BIPs/Getty Images)

In the slightly macabre experiment to find out where tattoo ink travels to in the body, French and German researchers recently used synchrotron X-ray fluorescence in four "inked" human cadavers — as well as one without. The results of their 2017 study? Some of the tattoo ink apparently settled in lymph nodes.

Image from the study.

As the authors explain in the study — they hail from Ludwig Maximilian University of Munich, the European Synchrotron Radiation Facility, and the German Federal Institute for Risk Assessment — it would have been unethical to test this on live animals since those creatures would not be able to give permission to be tattooed.

Because of the prevalence of tattoos these days, the researchers wanted to find out if the ink could be harmful in some way.

"The increasing prevalence of tattoos provoked safety concerns with respect to particle distribution and effects inside the human body," they write.

It works like this: Since lymph nodes filter lymph, which is the fluid that carries white blood cells throughout the body in an effort to fight infections that are encountered, that is where some of the ink particles collect.

Image by authors of the study.

Titanium dioxide appears to be the thing that travels. It's a white tattoo ink pigment that's mixed with other colors all the time to control shades.

The study's authors will keep working on this in the meantime.

“In future experiments we will also look into the pigment and heavy metal burden of other, more distant internal organs and tissues in order to track any possible bio-distribution of tattoo ink ingredients throughout the body. The outcome of these investigations not only will be helpful in the assessment of the health risks associated with tattooing but also in the judgment of other exposures such as, e.g., the entrance of TiO2 nanoparticles present in cosmetics at the site of damaged skin."

Photo by Alina Grubnyak on Unsplash
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