Preface to the 2009 Edition

At 11:42 P.M. on December 31, 2008, as the most tumultuous year in financial markets since the Great Depression was coming to a close, I got a text message from a friend in the hedge fund industry: “RIP” was all it said.

The reaction was understandable. Hedge funds, on average, lost 19 percent during the year, their worst annual showing ever. The industry shrunk to roughly $1.2 trillion, down from its peak of $1.8 trillion just six months earlier, as a result of losses and client withdrawals. Funds were shutting down and people were losing their jobs at a record pace. In 2009 and perhaps beyond, compensation would be a fraction of the fat paychecks industry players had received as recently as 2007. Hedge funds had ...

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