HEDGE FUNDS: PAST, PRESENT, AND FUTURE Flashcards
Why do both hedge funds and mutual funds coexist, and what are their similarities and differences?
Both hedge funds and mutual funds provide returns to investors, but hedge funds offer more freedom in investment strategies and have harsher entrance and exit conditions. They are designed for sophisticated investors, while mutual funds are more accessible and may have a passive management style.
What are the main strategies employed by hedge funds?
Hedge funds commonly use long-short equity, event-driven, macro, fixed-income arbitrage, and multi-strategy approaches. These strategies aim to exploit arbitrage opportunities and generate absolute returns.
Do hedge funds outperform mutual funds, and what factors make assessing hedge fund performance challenging?
Hedge funds tend to have lower volatility and positive alpha compared to mutual funds. However, assessing individual hedge fund performance is challenging due to biased samples, complex strategies, and difficulties in calculating market-adjusted returns.
What are the risks posed by hedge funds for the economy, and how have regulators responded to these risks?
Risks include investor protection concerns, risks to financial institutions exposed to hedge funds, liquidity risks, and excess volatility risks. Regulators have responded by implementing measures to regulate financial institutions’ exposure and promote transparency and risk management in the hedge fund industry.
What is the likely future of hedge funds, according to the article?
The future of hedge funds may involve a convergence with mutual funds, increased regulation, and a shift towards serving institutional investors. There may also be a focus on transparency, liquidity, and risk management, leading to a more regulated and institutionalized hedge fund industry.
