hedge strongfundsstrong in the aftermath of the financial crisis.pdfVIP

Hedge Funds in the Aftermath of  the Financial Crisis  Group: Brown, Kacperczyk, Ljungqvist, Lynch (coordinator), Pedersen,  Richardson  I. What Are Hedge Funds? There is no such thing as a well-defined hedge fund strategy or approach to investing. Rather, a hedge fund is a limited investment partnership otherwise exempt from registering with the Securities and Exchange Commission under Sections 3C1 and 3C7 of the Investment Company Act of 1940. The available data show a remarkable diversity of styles of management under the hedge fund banner. The long-short strategy often associated with hedge funds captures about 30 to 40 percent of the business. The style mix has been fairly stable (in terms of percentage of funds) but there have been shifts in market share as a fraction of assets under management. For example, event-driven funds focusing on public mergers, spin offs, other events of public firms and sometimes private equity, have risen in market share from 19% to 25% over the past decade, while the global macro style popularized by Soros has actually fallen from 19% to 3%. Moreover, there has been a dramatic rise in assets managed by funds of funds. According to Stephen Brown and William Goetzmann, 2003, Journal of Portfolio Management 29, 101-112, accounting for style differences alone explains about 20 percent of the cross sectional dispersion of hedge fund returns. The hedge fund industry has experienced rapid growth since 1992. ***Figure 1 ****According to the Hennessee Group, assets under management by hedge funds have grown from $35 billion in January 1992 to $1.535 trillion in January 2007. However, the financial crisis has certainly a