A Battle Cry for Hedge Funds—Separate but not Equal
|Apr 12th, 2012 | Filed under: Hedge Fund Industry Trends, Hedge Fund Regulation, Today's Post | By: Guest||
Since the financial crisis of 2008 it has become a popular anthem for the investment community at large to criticize and call for sweeping hedge fund reform. Champions to this cause include investors suffering at the hands of hedge fund managers who either misappropriated or mismanaged their funds, institutions with unfulfilled target investment goals, regulators working to appease investor sentiment for better information and access, and politicians jumping on a cause that works to increase their popularity with a voting base.
From this mélange, we have created a discourse on hedge fund investing that currently is in danger of serving none of these parties to the cause with any substantial improvements. Although the issue is complex and there are multiple causative factors, this piece addresses a few of the more popular disagreements between investors and the investment managers—those centered on liquidity, transparency, fees, and communication.
Let’s begin with a working definition for a hedge fund, found within the US government: “’Hedge fund’ is a general, non-legal term used to describe private, unregistered investment pools that traditionally have been limited to sophisticated, wealthy investors. Hedge funds are not mutual funds and, as such, are not subject to the numerous regulations that apply to mutual funds for the protection of investors – including regulations requiring a certain degree of liquidity, regulations requiring that mutual fund shares be redeemable at any time, regulations protecting against conflicts of interest, regulations to assure fairness in the pricing of fund shares, disclosure regulations, regulations limiting the use of leverage, and more.” ¹
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