Hedge Fund Policy Essay -- Economics Wealth Papers

Hedge Fund Policy What makes a hedge fund such a unique investment? And why is it so controversial? Many feel the risks of a hedge fund strongly outweigh its benefits. And with some funds, it does. But when a hedge fund strives, it has impeccable potential. It is arguable that the regulation on hedge funds, or lack there of, is what allows for so many to falter. However, despite various suggestions for policy changes, a few lemons still remain. Would changes in policy and regulation of a Hedge Fund allow it to be a more attractive investment opportunity? Although some alterations could make the hedge fund a safer investment, some risks are completely unavoidable. Ultimately, these changes may not only create more problems, but also take away from the uniqueness of this remarkable form of investment. A hedge fund is typically a private partnership invested primarily in publicly traded securities or futures. They are limited to 99 investors and require large minimum investments, which can range from $25,000 to several million dollars. Sixty five percent of the investors must have a net worth of at least $1 million. A general partner, who uses sophisticated strategies to make bets on the fund?s direction, and generally receives 20% of the profits, leads the fund. Hedge fund strategies fall into four open categories: absolute return, long/short equity, event driven, and global asset allocation. Absolute driven strategies are known as "market-neutral" funds, which seek to moderate the effects of overall market forces. Long/Short hedge funds, which represent about half of the assets in the hedge fund industry, seek to profit from underpricings by buying long, and overpricing through short selling. Event driven hedge funds ... ... able to grow and have the leverage it had, if it had not been lent the money," said Bert Ely. Though many may argue that hedge funds do more harm than good, they are still extremely popular investments and have proven to be very successful. Many have benefited with the current hedge fund policy and see no need for regulatory changes. Various proposed changes may not, in fact, be entirely beneficial. Once implemented, the suggested solutions could create more problems for the hedge fund world. And such changes would alter the characteristics that attract so many to such incredible investment opportunities. In the end, a better hedge fund policy is neither plausible nor desirable. Sources: http://library.hbs.edu/hedgefunds.htm http://www-personal.umd.umich.edu/~mtwomey/newspapers/100198he.html http://www.bernstein.com/perfstrat/products/ts_020401.htm