The Way of the World

Here`s an article about a highly profitable “expert network” company that gets paid to put hedge funds into contact with individuals with inside information, such as doctors overseeing clinical trials of new drugs. The article is cautious, but a commenter explains:

RBSF San Fancisco, CA 

Nobody pays $100,000 at $1,000 [per hour] just to chat with an expert about information that`s already public. Of course, they`re fishing for insider information, and finding it–the $100,000 paid by SAC resulted in a $250 million profit, or 2,500 times its investment. Gerson`s revenues are $300 million per year–it has been paid over a billion dollars in the last five years, and there are many other firms like this. At a multiple of 2,500 this would amount to trillions of dollars of profit by insider trading, which is money stolen from ordinary investors.  

Hedge funds`s performance this year is trailing S&P 500, after trouncing it every year for the past 20 years. Everyone is wondering at the deep reason behind this–the answer is likely much simpler. The titans running hedge funds are not smarter than anyone else; but this year they`ve been scared to act on insider information following the well publicized Gupta and Rajratnam convictions.