Preface to the 2006 Edition
Hedge funds are everywhere today. The term hedge fund used to conjure images of speculators hunting for absolute returns in any market in the world, using any instrument or style to capture their prey. The managers of the original multibillion-dollar mega-funds, such as George Soros or Julian Robertson, became well-known figures because of their speculative prowess. Yet they were also accused of such modern ills as attacks on developed world central banks and capital flight in the third world.
After the stock market crash of 2000, hedge funds came into their own by proving to be a superior asset management vehicle. As most global investors were suffering year after year of negative returns, hedge funds performed. This encouraged a wave of institutional money to flow into such alternative investment vehicles. At the same time, given the superior flexibility and attractive compensation structure of hedge funds, the most talented financial minds migrated over in what became a mass exodus from The City and Wall Street.
As hedge funds have matured, they have become more of a business. The tremendous inflow of capital has altered the freewheeling image of more than a decade ago. This shift has spawned a more formalized industry where managers often implement rather narrow, specific strategies and where investors in hedge funds no longer tolerate down years or even down months of performance. Competition has smoothed returns, both on the upside and the downside, ...