A hedge fund manager told me at lunch today that meetings with clients often started with the question "What's your fund's exposure to peripheral European sovereign debt?" The right answer to that question is, apparently, zero. If this attitude is common, hedge fund managers will avoid the asset class as an easy way of keeping their clients sweet. Nor do the clients want the managers to short the asset class, lest the Europeans come up with a deal at the last minute.
These clients are not sinister, top-hatted capitalists but ordinary pension funds afraid of some embarrassing loss in their portfolio. Their fear imposes a constraint on the people who look after their money. A similar process has happened at money market funds. Which fund manager wants to risk telling the clients they have lost money because of an exposure to Greek or Italian debt, stories that are all over the headlines?
Fear is often more powerful than greed.As a long term investor, you can take advantage of this fear, and carefully select businesses to add to your portfolio. These days, plenty of opportunities exist in European equities, Japanese equities and American financials and housing sectors.
Disclosure: None
