Does the world need another book on hedge funds? For that matter,
does the world need another hedge fund? More fundamentally, does
the world need another equity, convertible bond, straight bond, option,
foreign exchange contract, swaption, or any of the myriad securities
that underlie all hedge fund strategies? The per se answer to all of these
questions is no, but the practical reality is that we will have more—
much more—of all of the above. More books, more funds, more exotic
combinations of securities.
Why? Because it is in the nature of markets to innovate. Because the
historical record of risk-adjusted returns of the various hedge fund categories
is compelling. Because the barriers to hedge fund creation are
nearly nonexistent. Because there is a tidal wave of capital that wants
better returns with less risk; pension funds, endowments, individuals,
and even nations that have not yet supped at the hedge fund trough.
Will the marginal investor reap the risk-adjusted returns that they
envision? Maybe. Will the incremental hedge fund operator succeed in
providing those returns and therefore prosper? Some. Will various hedge
fund strategies tend toward saturation—both by investors and practioners—
thereby driving down incremental benefits? Definitely!
As the hedge fund industry enters early maturity, investors and fund
managers need to look beyond the immediate imperative of producing
attractive returns and contemplate the risks and opportunities in a longer
time frame. We should be concerned not only with the durabilty of our