But one certainty is that Jersey is a leading hedge fund centre – both in terms of running them and investing in them.
There are many types of hedge fund but broadly they can be defined as any pooled investment vehicle that is privately organised, that is administered by professional investment managers paid on the basis of performance and that is mainly used by wealthy individuals and institutional investors.
The number of hedge funds has ballooned since Alfred Winslow Jones established the first in America in 1949.
In recent years, investment professionals have flocked to the expanding sector – meaning that few have the experience of old-timers like Bernard Selz.
Although Mr Selz has been in the business for 35 years he has lost none of his hunger to make good returns.
He runs a single hedge fund for Jersey-based investment group Liberty Ermitage, which has grown by an average of 15 per cent each year since it was established in 1984.
Based in the US, Mr Selz visited Jersey this week to meet investors in the Liberty Ermitage Selz Fund.
Putting his money where his mouth is, Mr Selz not only runs the fund but is also its largest investor.
So what is the secret of his success? ‘I look for cheap stocks and free cash flow, which means the amount of money a company generates is more than what it needs to reinvest.
The true value of a company is what its free cash flow can be.
‘One of the things about the fund is my freedom to roam into currencies, commodities, equities, bonds etc, depending on what makes sense.
I have no idea what I’ll read in the newspapers but hopefully I’ll know how to react to it.
And if you think about it, you usually have enough time to react.
‘Hedge funds are all about compound interest, which is the interest on an investment plus any previous accumulated growth.
So, for example, a $100 investment earning compound interest at 10 per cent a year would accumulate to $110 at the end of the first year and $121 at the end of the second year and so on.
‘So the key is to never give back money in large amounts.
As hedge funds have grown in popularity so have fears that their above-average performance could be under threat.
Some argue that because hedge funds aim to be nimbler and smarter than their peers in finding anomalies in the markets, as the industry has expanded so the chance of finding those anomalies has diminished.
Although Mr Selz is confident that hedge funds have a prosperous future, he does think that some realism needs to be injected into the industry.
‘Running a hedge fund is no better or worse than running a private investment account or mutual fund and I think there is a danger that expectation is too high on the part of the investor.
‘And I’m afraid it will probably take some disappointment before the message gets through.
When you only had four funds the average growth was high but now you have 12,000 funds with $1 trillion under investment, the average rate of growth obviously comes down.
‘The whole concept has also become bastardised with a lot of new ”hedge funds” not really fitting the profile.
But Mr Selz’s fund is based on a traditional long/short view and looks likely to continue to make healthy returns for investors.
‘But I’m still not happy with its performance,’ he admits.
‘Because I’m of the view that a happy manager is one who is sitting back and under-achieving.
