Hedge Funds: Issues and Studies
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This chapter provides an overview of the characteristics of hedge funds and the academic literature on them. By limiting their investors and their marketing efforts, hedge funds are exempt from most of the major securities acts adopted by the United States over the past 75 years. Because disclosures by hedge funds are voluntary, there exist serious challenges to those who analyze hedge fund performance results and trading strategies. Some of the interesting findings about these funds are as follows: (1) Many hedge funds undertake significantly more aggressive/risky trading strategies than those adopted by other investment companies; (2) the contingent incentive fee structure employed by hedge funds can lead to significantly more income for their managers than managers of other investment companies per dollar of performance; (3) the after-fee performance of hedge funds does not appear to be significantly different from that of other investment companies; and (4) there is no conclusive evidence that hedge funds have exacerbated (or caused) any of the significant worldwide financial crises during the past 25 years.