An outspoken fund manager with contrarian views

LONDON – Hugh Hendry
has a big mouth, as Hugh Hendry will tell you. With a sharp wit and a sharper
tongue, Hendry, a plain-spoken Scot, has positioned himself as the public
contrarian thinker of this city’s very private hedge fund community.

The euro? It’s
finished, Hendry proclaims.

China? Headed for a
fall.

President Barack
Obama? “If there was a way to short Obama, I would,” Hendry said.

Hendry runs the
successful hedge fund firm Eclectica Asset Management. It is an old-school
macroeconomic fund company with a big-think, globe-straddling style more akin
to the Quantum Fund, of George Soros fame, than to the high-tech razzle-dazzle
of Wall Street’s math-loving quant analysts.

“Hugh is an
anachronism,” said Steven Drobny, a founder of Drobny Global Advisors. “He
reminds one of the original hedge fund managers from the ‘70s and ‘80s.”

At 41, Hendry is also
emerging from the normally secretive world of hedge funds to captivate fans and
foes with a surprising level of candour.

Last May, on British
television, he verbally sparred with Jeffrey D. Sachs, director of the Earth
Institute at Columbia and perhaps the best-known economist writing on
developmental issues.

Before that, he took
on Joseph E. Stiglitz, the Nobel laureate, about the future of the euro.
“Hello, can I tell you about the real world?” Hendry interjected at one point.
It was a huge hit on YouTube.

His verbal
pyrotechnics have won Hendry a reputation for challenging the economics
establishment. He is regarded and appreciated by many as overly pessimistic
about, well, just about everything.

His big worry lately
has been China. Like James Chanos, a prominent hedge fund manager in the United
States, Hendry says he believes China’s days of heady growth are numbered. A
crisis is coming, he insists.

“He’s an original
thinker, and he’s definitely not afraid of saying what he thinks, even if he’s
not always right,” said Jacob H. Schmidt, founder of Schmidt Research Partners.

Hendry has made – and
sometimes lost – money for his investors. Eclectica’s flagship fund, the
Eclectica Fund, is up about 13 percent this year, besting by far the average
1.3 percent loss among similar funds.

But returns have been
erratic – “too much sex, drugs and rock ‘n’ roll” for some investors, he
concedes. In 2008, the Eclectica Fund was up 50 percent one month and down 15
percent another. Hendry plans to change that.

The firm bet
correctly that the financial troubles plaguing Greece would eventually ripple
through to the market for German bonds, considered the European equivalent of
ultra-safe U.S. Treasury securities. But the firm lost money betting on
European sovereign debt in the first quarter of last year.

His latest obsession
is China. He likens the country to Starbucks: good at growing quickly but not
so good at creating wealth.

“The idea is that
things would happen today that are commonly thought of as impossible, most
notably a significant reversal of China,” Hendry said.

Maps cover the walls
of his office. On one, blue magnetic pins plot his recent trip through China.
He filmed himself there in front of huge, empty office buildings and giant new
bridges in the middle of nowhere – signs, he said, of a credit bubble.

Hendry’s
outspokenness has won him both fans and detractors.

Marc Faber, the money
manager known as Doctor Doom for his bearish views, calls Hendry “a deep
thinker.”

“He has strong views
and expresses them, not to get publicity but because he has a great understanding
of the markets,” Faber said.

Some London investors
are less charitable. Two declined to comment on Hendry, saying they did not
want to “get into a fight” with him.

Hendry certainly does
not fit the stereotype of a discreet London moneyman.

The son of a truck
driver, he was the first in his family to attend a university – Strathclyde, in
Glasgow, not Oxbridge. He studied accounting and joined Baillie Gifford, a
large Edinburgh money manager.

Frustrated that he
could not challenge the investment strategies of his bosses, he jumped to
Credit Suisse Asset Management in London. There, a chance meeting with an
equally opinionated hedge fund manager, Crispin Odey, led to a job. Before
long, Hendry struck out on his own.

The inspiration for
his investment approach comes from an unlikely source: “The Gap in the
Curtain,” a 1932 novel by John Buchan that is borderline science fiction. The
plot centres on five people who are chosen by a scientist to take part in an
experiment that will let them glimpse one year into the future. Two see their
own obituaries in one year’s time.

Hendry calls the
novel “the best investment book ever written” because it taught him to envision
the future without neglecting what happened leading up to it, a mistake many
investors make, he said.

Hendry hopes
Eclectica will grow to $1 billion – still relatively small by hedge fund
standards. But neither admirers nor rivals expect him to change his
plain-talking ways.

“I’ve got such a big
mouth,” he said, “I have to be very careful what I say.”

His big worry lately
has been China. Like James Chanos, a prominent hedge fund manager in the United
States, Hendry says he believes China’s days of heady growth are numbered. A
crisis is coming, he insists.

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