Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

2008 and 2009, The Root of All Evil?

The perception of hedge funds quickly changed with the advent of the financial crisis and the ensuing recession that started in 2008. Hedge funds were suddenly seen to have failed to deliver on the promise of absolute returns, as the industry lost money for the first time in 20 years. Despite the strong relative performance compared to the plunge in the S&P 500 of over 40 percent in 2008, the size and unanticipated nature of hedge fund losses exceeding 20 percent shattered the confidence of many HNWI and institutional investors. To make matters much worse, a number of very high-profile scandals, such as Madoff, tarnished the entire industry's reputation and challenged many of the business practices of hedge fund managers. Investors began to question the wisdom, security, and safety of allocating capital to hedge funds. Hedge funds were blamed for market volatility and a whole lot more by global regulators and investors, and media coverage often turned ugly.