Assets managed by hedge funds have grown faster over the last ten years than assets managed by
mutual funds. Hedge funds and mutual funds perform the same economic function, but hedge
funds are largely unregulated while mutual funds are tightly regulated. This paper compares the
organization, performance, and risks of hedge funds and mutual funds. It then examines whether
one can expect increasing convergence between these two investment vehicles and concludes
that the performance gap between hedge funds and mutual funds will narrow, that regulatory
developments will limit the flexibility of hedge funds, and that hedge funds will become more
institutionalized