Purpose - This paper aims to help explain 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 investment vehicles evoke, and, from this, to consider the implications of the excitement-generating potential underlying all financial innovations. Design/methodology/approach - Within the framework of critical discourse analysis, this paper explores how hedge funds were represented in the financial press, manager interviews, investor comments, and Congress hearings, before and after the burst of the hedge fund "bubble". The authors then draw on the psychodynamic literature, and frame the human unconscious need for excitement in this discourse. Findings - The paper finds evidence demonstrating how hedge funds were transformed in the minds of investors into objects of fascination and desire with their unconscious representation dominating their original investment purpose. Based on a psychoanalytic interpretation of financial markets, and dot.com mania in particular, the authors show how hedge fund investors' search for "phantastic objects" and the associated excitement of being invested in them can become dominant, resulting in risk being ignored. Research limitations/implications - The authors take an interdisciplinary perspective drawing on the insights of the psychoanalytic understanding of unconscious fantasies, needs and drives as these relate to investment activity. Practical implications - Public policy implications are that stricter ethical guidelines for the hedge fund industry need to be introduced, and suitability regulations that go beyond mandatory transparent disclosure of investment risks are required. Originality/value - The paper is one of very few studies concerning investors' emotional attachment to financial innovations, and builds on the emerging field of emotional finance. The conclusions and implications discussed in the paper go beyond any single financial market or product.
