Hugh Hendry

Maverick fund manager shares his contrarian views, obsession with China

The New York Times in London
Jul 25, 2010

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 London’s very private hedge fund community.

The euro? It’s finished. China? Headed for a fall. President Barack Obama? “If there was a way to short Obama, I would,” says the man who runs Eclectica Asset Management.

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

At 41, Hendry is 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 Sachs, director of the Earth Institute at Columbia University, and perhaps the best-known economist writing on developmental issues.

Before that, he took on Joseph 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.

Hendry has made – and sometimes lost – money for his investors. Eclectica’s flagship fund, the Eclectica Fund, is up about 13 per cent this year, besting by far the average 1.3 per cent 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 per cent one month and down 15 per cent 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 US Treasury securities. But the firm lost money betting on European sovereign debt in the first quarter of last year.

Last week, Hendry was musing about the financial world in his office behind a scruffy shopping mall in the Bayswater section of London. No Savile Row here: He was sporting a white oxford shirt, jeans and blue Converse Chuck Taylor sneakers, along with a three-day stubble and hipster horn-rim glasses.

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 is devising ways to bet on a spectacular deterioration of China’s economy. He declined to divulge any details.

His 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.

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.