The Future of Hedge Fund Investing: A Regulatory and Structural Solution for a Fallen Industry

CHAPTER 2

The Players

 

 

 

 

If you wanted to invest in the stock market or an ETF (exchange traded fund), you could simply log into your E-Trade or Schwab account and within seconds fire off a trade and become an investor in Dell. The entire process would cost you no more than a few cents per stock, and you would not need to read and sign reams of papers acknowledging that you knew and understood all the risks you were taking. Furthermore, like any diligent investor, you could follows all the news on Dell in newspapers, business news channels, conference calls, analyst reports, or any of the other sources and feel that you knew exactly where your hard-earned money was invested and how it was likely to perform. But, most important, say if you woke up one day and realized that Dell was going to have a hard time competing with the latest brainchild of Steve Jobs, you could very easily pay a few more cents and within seconds sell your Dell and become a proud owner of Apple stock. Analyzing, buying, and selling stocks or even bonds and money market funds is a transparent, cheap, and easy process; investing in hedge funds is a lot more complex than that.

Total hedge fund industry assets reached $2 trillion as of December 31, 2007. There are approximately 9,400 hedge funds and 1,600 funds of hedge funds in the world today. Net asset flows into hedge funds are increasing dramatically, largely due to institutional allocations. Investing in hedge funds is not a transparent, cheap, or easy ...