The Lost Decade for Hedge Funds: Three Threats

2021 ◽  
pp. 34-63
Author(s):  
Joseph A. McCahery ◽  
F. Alexander de Roode
Keyword(s):  
Mutual Funds ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Financial Industry ◽  
Market Environment ◽  
Direct Competition ◽  
Lost Decade ◽  
Recent Trends ◽  
Fund Industry ◽  
Asset Managers

The last decade has challenged the paradigm of the hedge fund industry as a unique performer. In this chapter three main factors are identified that have affected the operation of hedge funds: competition from mutual funds, the market environment, and tighter regulation. Recent trends in the financial industry have moved asset managers closer to hedge funds by introducing similar underlying strategies, such as liquid alternative funds, to directly compete with hedge funds. Such strategies can achieve performance similar to that of hedge funds, thus introducing more competition for hedge funds. Moreover, it is shown that several hedge fund styles that have traditionally worked well in crisis times—even in the last decade—are also strategies that can be replicated by liquid alternatives. Together with tighter regulation and a strong market environment, these developments continue to put pressure on the hedge fund industry. The chapter’s empirical findings add to the existing debate on the performance of hedge funds and the direct competition from liquid alternatives.

Portraits of five hedge fund fraud cases

2008 ◽  
Vol 15 (2) ◽  
pp. 179-213 ◽  
Author(s):  
Majed R. Muhtaseb ◽  
Chun Chun “Sylvia” Yang
Keyword(s):  
Asset Management ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Investment Fund ◽  
Good Opportunity ◽  
Content Type ◽  
Fund Managers ◽  
Management Group ◽  
Fund Industry ◽  
Asset Managers

PurposeThe purpose of this paper is two fold: educate investors about hedge fund managers' activities prior to the fraud recognition by the authorities and to help investors and other stakeholders in the hedge fund industry identify red flags before fraud is actually committed.Design/methodology/approachThe paper investigates fraud committed by the Bayou Funds, Beacon Hill Asset Management, Lancer Management Group (LMG), Lipper & Company and Maricopa investment fund. The fraud activities took place during 2000 and 2005.FindingsThe five cases alone cost the hedge fund investors more than $1.5 billion. Investors may have had a good opportunity for avoiding the irrecoverable costs of the fraud had they carefully vetted the backgrounds of the hedge fund managers and/or continuously monitored the funds activities, especially during turbulent market environments.Originality/valueThis is the first research paper to identify and extensively investigate fraud committed by hedge funds. In spite of the size of the hedge fund industry and relatively substantial level and inevitably recurring fraud, academic journals are to yet address this issue. The paper is of great value to hedge funds and their individual and institutional investors, asset managers, financial advisers and regulators.

Financial Industry Affiliation and Hedge Fund Performance

2021 ◽  
Author(s):  
Lingling Zheng ◽  
Xuemin (Sterling) Yan
Keyword(s):  
Initial Public Offerings ◽  
Hedge Funds ◽  
Negative Impact ◽  
Hedge Fund ◽  
Seasoned Equity Offerings ◽  
Fund Performance ◽  
Financial Industry ◽  
Internal Conflicts ◽  
Industry Affiliation ◽  
Hedge Fund Performance

Affiliation with a financial conglomerate may provide hedge funds with superior information about the conglomerate’s lending, investment banking, and brokerage clients; such affiliation can also lead to potential conflicts with the other units of the conglomerate and exacerbate the conflict between hedge fund companies and hedge fund investors. We find that affiliated funds significantly underperform unaffiliated funds. A difference-in-difference analysis confirms the negative relation between financial industry affiliation and hedge fund performance. Affiliated funds pursue asset-gathering strategies, overweight their conducted initial public offerings/seasoned equity offerings clients’ stocks, are more likely to commit legal and regulatory violations, and tend to exhibit a greater number of internal conflicts. Our results are consistent with conflict of interest exerting a negative impact on the performance of affiliated hedge funds. However, it is possible that lack of skill also contributes to the underperformance of affiliated funds. This paper was accepted by Karl Diether, finance.

scholarly journals The Rise of Institutional Investors

2019 ◽  
Author(s):  
Jan Fichtner
Keyword(s):  
Mutual Funds ◽  
Hedge Funds ◽  
Institutional Investors ◽  
Private Equity ◽  
Short Term ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Important Position ◽  
State Street ◽  
Asset Managers

During the last decades, institutional investors gained an ever more important position as managers of assets and owners of corporations. By demanding (short-term) shareholder value, some of them have driven the financialization of corporations and of the financial sector itself. This chapter first characterizes the specific roles that private equity funds, hedge funds, and mutual funds have played in this development. It then moves on to focus on one group of institutional investors that is rapidly becoming a pivotal factor for corporate control in many countries – the “Big Three” large passive asset managers BlackRock, Vanguard and State Street.

A Study on the Performance of Indian Mutual Funds in Recent Years

2021 ◽  
pp. 428-444
Author(s):  
Dipika Varshney ◽  
Sowjanya Heblikar ◽  
Sunitha B K
Keyword(s):  
Mutual Funds ◽  
Empirical Research ◽  
Mutual Fund ◽  
Financial Industry ◽  
Indian Economy ◽  
Cause And Effect ◽  
Fund Industry ◽  
Mutual Fund Industry ◽  
And Performance

The Indian mutual fund industry is an integral part of the Indian financial industry. The mutual fund industry has a significant impact on the Indian economy. This study aims at understanding the growth and performance of mutual fund industry and understanding the cause and effect through empirical research. For this research, published papers have been studied and analysed to give a better understanding of the industry. This study records the performance of Indian mutual funds from the year 2015-2020. It analyses the performance of the debt, equity, and ETF mutual funds. The challenges are huge, but the investors have shown a matured behaviour. The 2020 pandemic has allowed investors to balance their portfolios by removing poor performing mutual fund holdings.

Style and Skill: Hedge Funds, Mutual Funds, and Momentum

2020 ◽  
Vol 66 (12) ◽  
pp. 5505-5531 ◽  
Author(s):  
Mark Grinblatt ◽  
Gergana Jostova ◽  
Lubomir Petrasek ◽  
Alexander Philipov
Keyword(s):  
Mutual Funds ◽  
Hedge Funds ◽  
Mutual Fund ◽  
Hedge Fund ◽  
Fund Performance ◽  
Short Sales ◽  
Fund Managers ◽  
Liquidity Provision ◽  
Stock Picking ◽  
Hedge Fund Performance

Classifying mandatory 13F stockholding filings by manager type reveals that hedge fund strategies are mostly contrarian, and mutual fund strategies are largely trend following. The only institutional performers—the two thirds of hedge fund managers that are contrarian—earn alpha of 2.4% per year. Contrarian hedge fund managers tend to trade profitably with all other manager types, especially when purchasing stocks from momentum-oriented hedge and mutual fund managers. Superior contrarian hedge fund performance exhibits persistence and stems from stock-picking ability rather than liquidity provision. Aggregate short sales further support these conclusions about the style and skill of various fund manager types. This paper was accepted by Tyler Shumway, finance.

scholarly journals Hedge Funds for Retail Investors? An Examination of Hedged Mutual Funds

2009 ◽  
Vol 44 (2) ◽  
pp. 273-305 ◽  
Author(s):  
Vikas Agarwal ◽  
Nicole M. Boyson ◽  
Narayan Y. Naik
Keyword(s):  
Mutual Funds ◽  
Hedge Funds ◽  
Rapid Growth ◽  
Lower Cost ◽  
Hedge Fund ◽  
Trading Strategies ◽  
Superior Performance ◽  
Retail Investors

AbstractRecently, there has been rapid growth in the assets managed by “hedged mutual funds”—mutual funds mimicking hedge fund strategies. We examine the performance of these funds relative to hedge funds and traditional mutual funds. Despite using similar trading strategies, hedged mutual funds underperform hedge funds. We attribute this finding to hedge funds’ lighter regulation and better incentives. Conversely, hedged mutual funds outperform traditional mutual funds. Notably, this superior performance is driven by managers with experience implementing hedge fund strategies. Our findings have implications for investors seeking hedge-fund-like payoffs at a lower cost and within the comfort of a regulated environment.

Derivatives Use and Risk Taking: Evidence from the Hedge Fund Industry

2011 ◽  
Vol 46 (4) ◽  
pp. 1073-1106 ◽  
Author(s):  
Yong Chen
Keyword(s):  
Risk Reduction ◽  
Risk Taking ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Market Risk ◽  
Risk Shifting ◽  
Large Sample ◽  
Event Risk ◽  
Market State ◽  
Fund Industry

AbstractThis paper examines the use of derivatives and its relation with risk taking in the hedge fund industry. In a large sample of hedge funds, 71% of the funds trade derivatives. After controlling for fund strategies and characteristics, derivatives users on average exhibit lower fund risks (e.g., market risk, downside risk, and event risk), such risk reduction is especially pronounced for directional-style funds. Further, derivatives users engage less in risk shifting and are less likely to liquidate in a poor market state. However, the flow-performance relation suggests that investors do not differentiate derivatives users when making investing decisions.

PONZI FINANCE AND THE HEDGE FUND INDUSTRY

2012 ◽  
Vol 15 (supp02) ◽  
pp. 1250037
Author(s):  
WILLI SEMMLER ◽  
RAPHAELE CHAPPE
Keyword(s):  
European Union ◽  
Dynamic Model ◽  
Asset Management ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Stochastic Dynamic ◽  
The European Union ◽  
Obama Administration ◽  
Regulatory Frameworks ◽  
Fund Industry

This paper presents a stochastic dynamic model that can be used to describe situations in asset management where hedge funds may inadvertently find themselves running a Ponzi financing scheme. Greater transparency is necessary to reduce such opportunities, such as audited financials, and disclosure of valuation methodologies. In that respect, new regulatory frameworks enacted by the Obama administration and the European Union are welcome developments.

Hedge Fund Regulation

2017 ◽  
Author(s):  
Wulf A. Kaal ◽  
Dale A. Oesterle
Keyword(s):  
United States ◽  
Hedge Funds ◽  
Hedge Fund ◽  
Private Investment ◽  
The United States ◽  
Regulatory Framework ◽  
Securities Regulation ◽  
Investment Fund ◽  
Investment Funds ◽  
Fund Industry

The hedge fund industry in the United States has evolved from a niche market participant in the early 1950s to a major industry operating in international financial markets today. Hedge funds in the United States began as privately held and privately managed investment funds, unregistered and exempt from federal securities regulation. An increasing investor demand for hedge funds and substantial growth of the hedge fund industry resulted in a tectonic shift in the regulatory framework applicable to the industry via the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act. This chapter summarizes the evolution of the regulatory framework governing the hedge fund industry. It focuses on the registration and disclosure provisions added by the Dodd-Frank Act and several other regulatory innovations, including the Jumpstart Our Business Startups (JOBS) Act and proposals for tax reform of the private investment fund industry.

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