ABSTRACT
This chapter draws on psychoanalytic theory, and especially the work of M. Klein and W. R. Bion, to explain the magical appeal of hedge funds to investors, and why they are willing to put so much of their funds and, by extension, their trust into such "exotic" and secretive investment vehicles. It explains the rapid growth in aggregate hedge fund assets under management until June 2008, followed by their subsequent dramatic collapse, in terms of the conflicting emotions such investments evoke, and considers the implications of the excitement-generating potential underlying all financial innovations. Adopting the methodological approach of critical discourse analysis, the chapter explores how hedge funds were represented in the financial press, interviews with hedge fund managers, investor comments, and Congress hearings, before and after the burst of the hedge fund "bubble". The chapter suggests that financial regulators need to recognise explicitly the key role powerful unconscious processes play in all financial activity at both individual and market levels.
