“There are basically two types of people,” said Mark Twain. “People who accomplish things, and people who claim to have accomplished things. The first group is less crowded.”

Hedge fund managers take note. The rapid contraction of their industry over the past year has increased the pressure on firms to prove they can accomplish what they claim. They will have their work cut out: from a peak of about $1,900bn of assets in late 2007, the industry will probably fall to about $750bn of assets this year. That these losses occurred at the same time as major market declines and a global economic crisis does not excuse them, for it is during such times hedge funds are supposed to preserve investors’ money. So what has gone wrong?