Hedge funds: Getting riskier?

So there's this Great Moderation, right? And the hedge funds are part of it. Look at all of them with their high alpha underperforming the S&P 500: in other words, by bringing down beta to incredibly low levels. Which is all well and good, but it's hardly exciting. We want activist investors like Patrick Degorce: high risk, high return! Or even, for that matter, Brian Hunter. A bit of excitement – you can lose your money or you can double it, treble it! And so: "Best Ideas" funds. Which are getting a bit of a bad rap. But the returns have to come from somewhere, right? One alternative: just lever up before you invest in that high-alpha, low-beta fund. But then you run the risk of losing more than all your money.

Posted by Felix at 14:42 EST

Comments

There are those who would argue that all the excess liquidity out there drives funds into riskier investments and bring liquidity to underserved markets. Sounds great. As long as they keep underwriting diligently. But then look at them sub-prime and Alt A mortgages. Whoops.

Posted by: True Swan at 15:19 EST, February 21, 2007

Posted by: True Swan at 15:20 EST, February 21, 2007