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

2010 to Present, God's Answer to the Yield Gap!

Once the market settled down in 2009 and 2010, hedge funds found themselves facing investors with more questions than ever. They demanded improved transparency, better controls, independent administrators and specialized risk management, and valuation committees to monitor managers’ decisions. A number of best practices and industry standards were quickly developed to regain investor confidence. A great deal of investor feedback was also processed by the industry, and changes to the funds and their service providers were implemented. Miraculously, despite the crisis of 2008, the industry began to gain ground. Those hedge funds that responded to the demands of institutional investors began to grow. Those that did not change lost assets and closed. Most important, the long-term track record of the sector continued to get the attention of large pension plans and endowments that were looking in the rearview mirror at an equity market that had produced close to zero net gains for the entire decade and a bond market that had forward yields ranges from close to zero to under 4 percent. Most pensions and endowments needed to generate a targeted return of between 5 and 8 percent. The high-single-digit returns and low-single-digit volatility associated with the hedge fund sector once again gained traction with investors.

Today, hedge funds are growing again, and the larger hedge funds, with the capacity to implement a high-quality-control environment ...