Risk Watch: The Continuing Danger of the Young Money Manager

by: Nadav Manham

One of the few consolations of the terrible last year in markets is that very soon we won't have to hear some version of the following from older money managers:

These young hedge fund managers, some of them only started shaving yesterday. They've never lived through a bear market like I have so what the hell do they know about investing?

True in a sense, but be careful. First, the veteran can lose money just as easily as the rookie.

Second, and more perniciously, just because a young money manager has been humbled does not mean he now shares your thinking about risk. And in a few years' time, when young hedge fund managers are back raising money for new funds, and they boldly advertise "I've learned my lesson," don't be so quick to believe them.

The game of institutional investment management (especially for family offices) is largely about the Old and the Rich entrusting their capital to the Young and the Poor. But as every older person, no matter how wealthy, knows, the young will always be richer in the one thing that matters most--time. It's perfectly rational for a younger person to take more financial risks because if things don't work out he can always start over.

Charlie Munger, who today preaches jeremiads against debt, was in his youth a highly leveraged real estate developer. Even Warren Buffett borrowed money to invest when he was younger.