Hedge Funds
Hedge funds have grown rapidly in recent years and are now about one-eighth the size of mutual funds. But these largely unregulated limited partnerships give rise toa number of concerns. Their management expenses are very high and their investment strategies are often risky with a small probability of very large losses. This and other risks are not understood by all investors. In response, the Financial Economists Roundtable recommends that fiduciaries for retail investors should limit their investments in hedge funds to a modest percent of assets under management, that regulators should not rescue troubled hedge funds, and that measures of performance and risk be standardized among funds. Caveat emptor should still apply, but more rational and informed investor behavior should result.
