Hedge Fund Performance and Issues

Abstract

Historically, hedge fund managers have delivered attractive risk-adjusted returns and low correlations with major equity and bond markets. However, the financial crisis taught investors that, in periods of major market dislocation, absolute returns and low correlations can be elusive. Concerns about hedge fund risks, along with investors’ urgency to obtain liquidity in a highly uncertain environment, prompted massive capital flight out of the hedge fund industry during 2008 and 2009. Nonetheless, the industry recovered rapidly, and hedge fund assets under management reached $2 trillion for the first time in 2011. This chapter examines hedge fund industry growth, performance, and potential future developments, with a secondary focus on its organizational structure.