A hedge fund is a private investment fund charging a performance fee and typically open to only a limited number of investors, e.g., in the U.S., hedge funds are largely open to accredited investors only. Hedge Funds have grown in size and influence on the public securities and private investment markets.

Hedge Funds are not currently subject to any direct regulation by the SEC, the NASD, or other federal regulating commissions, unlike mutual funds, pension funds, and insurance companies. Some funds that trade commodity futures contracts are considered to be commodity pools, regulated by the Commodity Futures Trading Commission and National Futures Association.

The term is not tightly defined, but is used to distinguish such funds from retail investment funds, such as mutual funds that are available to the general public. Retail funds tend to be highly regulated, limited to holding a specific range of financial assets such as bonds, equities or money market instruments. Retail funds tend to have a restricted ability to borrow, leverage or hedge their investments, though they may have the ability to hedge via derivative contracts.

Hedge funds are limited only by the terms of the contracts governing the particular fund. Hedge funds may be either long or short assets and may enter into futures, swaps and other derivative contracts. In this way, hedge funds can follow more complex investment strategies.

Hedge fund managers receive compensation from incentive fees tied to the fund's performance, typically around 20% of annual gains, plus a management fee equal to about 1% of assets, according to Hedge Fund Alert, a weekly newsletter. The funds, often organized as limited partnerships, typically invest on behalf of high-net-worth individuals and institutions. Their primary objective is often to preserve investors' capital by taking positions whose returns are not closely correlated to those of the broader financial markets.

Because of the substantial risks involved in unregulated, complex, and leveraged investments, hedge funds are normally open only to professional, institutional or otherwise accredited investors. This restriction is often implemented through limits on participating investors or minimum investment amounts.

Origins and development

The term hedge fund dates back to a fund founded by Alfred Winslow Jones in 1949. A.W. Jones was to sell short some stocks while buying others, thus some of the market risk was hedged. Jones is often credited with founding the first hedge fund, but many "investment pools", "investment syndicates", "investment partnerships" or "opportunity funds" that would today be considered hedge funds were in operation long before. Managers included Jesse Livermore, Bernard M. Baruch and Benjamin Graham.

While most of today's hedge funds still trade stocks both long and short, many do not trade stocks at all, instead focusing on other financial instruments including commodity futures, options, and emerging market debt.

Assets under management of the hedge fund industry totaled $1.225 trillion at the end of the second quarter of 2006 according to the recently released data by Chicago-based Hedge Fund Research Inc. (HFR). This was up 19% on the previous year and nearly twice the total three years earlier. Because hedge funds typically use leverage/gearing or debt to invest, the positions they can take in the financial markets are larger than their assets under management. The number of hedge funds increased 10% during the past year to reach around 9,000 according to HFR. Research conducted by TowerGroup predicts that hedge fund assets will grow at an annualised rate of 15% between 2006 and 2008 while the actual number of hedge funds is likely to remain relatively flat.^{[citation needed]}

Fees

Usually the hedge fund manager will receive both a management fee and a performance fee. As with other investment funds, the management fee is computed as a percentage of assets under management. Management fees might typically be 1.5% or 2.0%.

Performance fees

Performance fees, which give a share of positive returns to the manager, are one of the defining characteristics of hedge funds. The performance fee is computed as a percentage of the fund's profits, counting both paper profits and actual realized trading profits. Typically, hedge funds charge 20% of gross returns as a performance fee, but again the range is wide, with highly regarded managers demanding higher fees. In particular, Steven Cohen's SAC Capital Partners charges a 50% incentive fee (but no management fee) and Jim Simons' Renaissance Technologies Corp. charged a 5% management fee and a 44% incentive fee in its flagship Medallion Fund before returning all investors' capital and running solely on its employees' money.^{[citation needed]}

Performance fees exist because investors are usually willing to pay managers more generously when the investors have themselves made money. For managers who perform well the performance fee is extremely valuable.

Hurdles

Funds may also specify a 'hurdle', which signifies that the fund will not charge a performance fee until its annualized performance exceeds a benchmark rate, such as USD 90-day T-bills or a fixed percentage. Rules as to what period should be considered for the hurdle vary from fund to fund, but it most commonly covers the current fiscal year.

Sometimes the performance fees are levied only after a performance "Hurdle" has been met. A common practice is to use a hurdle rate linked to short term interest rates, for example 3 month LIBOR in the fund currency. This links performance fees to the ability of the manager to do better than the investor would have done if he had put the money in a bank account.

Though logically appealing, this practice has diminished as demand for hedge funds has outstripped supply and hurdles are now rare. ^{[citation needed]}

High water marks

A "High water mark" is usually used. ^{[citation needed]} This means that the manager does not receive incentive fees unless the value of the fund exceeds the highest net asset value it has achieved during the preceding fiscal year. For example, if a fund was launced at a NAV of 100 and rose to 130 in its first year, a performance fee would be payable on the 30% return. If the next year it dropped to 120, no fee is payable. If in the third year the NAV rises to 143, a performance fee will be payable only on the 10% return from 130 to 143 (which is 10%) rather than on the full return from 120 to 143.

This measure is intended to link the manager's interests more closely to those of investors and to reduce the incentive for managers to seek volatile trades. If a high water mark is not used, a fund that ends alternate years at 100 and 110 would generate performance fee every other year, enriching the manager but not the investors. However, this mechanism does not provide complete protection to investors as a manager that has lost money may simply decide to close the fund and start again with a clean slate -- provided, of course, he can persuade investors to trust him with their money.

Problems with performance fees

Criticism is heaped upon hedge funds by investigative journalist Gary Weiss in his caustic 2006 book Wall Street Versus America, which contends that hedge funds have evolved into little more than high-fee mutual funds.

Performance fees have been criticised by many people including notable investor Warren Buffett for giving managers an incentive to take risk, possibly excessive risk, as opposed high long-term returns. A fund that may gain $100M in one year and lose $100M in the next year may pay its managers a performance fee of $20M or more for the profitable year, although overall the nominal return is zero and the real return after fees is negative.

Investment strategies

The bulk of hedge funds describe themselves as long / short equity, perhaps because this is the least specific of the available descriptions. However, many other descriptions are used. Common strategies include:

• Global macro – seeking assets that are mispriced relative to global alternatives.
• Arbitrage – seeking related assets that have deviated from some anticipated relationship.
  • Convertible arbitrage – between a convertible bond and equity.
  • Fixed income arbitrage – between related bonds.
  • Risk arbitrage – between securities whose prices appear to imply different probabilities for an event.
  • Statistical arbitrage (or 'StatArb') – between securities that have deviated from some statistically estimated relationhip.
  • Derivative arbitrage – between a derivative security and the underlying security.
• Long / short equity – generic term covering all hedged investment in equities.
  • Short bias – emphasising or investing solely short.
  • Equity market neutral – maintaining a close balance between long and short positions.
• Event driven – specialised in the analysis of a particular kind of event
  • Distressed securities – companies that are or may become bankrupt
  • Regulation D – distressed companies issuing securities
• Other
  • Emerging markets
  • Fund of hedge funds

Legal structure

Legal structure is usually determined by the tax environment of the fund investors. Many hedge funds are domiciled -- have their legal residence -- offshore in countries unrelated to either the manager, investor or investment operations of the fund, with the objective of making tax payable only by the investor and not additionally by the fund.

For U.S-based investors who pay tax, hedge funds are often structured as limited partnerships because these receive relatively favourable tax treatment in the US. The hedge fund manager (usually structured as a corporate entity) is the general partner or manager and the investors are the limited partners or members respectively. The funds are pooled together in the partnership or company and the general partner or manager makes all the investment decisions. ^{[citation needed]}

Non-US investors and U.S. entities that do not pay tax (such as pension funds) do not receive the same benefits from limited partnerships, and funds for these investors are often structured as offshore or unit trusts or Investment_company. Hybrid or "Master-feeder " structures that contain both a US limited partnership and an offshore company allow hedge funds to attract capital from several different tax regimes.

At the end of 2004, 55% of the number of hedge funds, managing nearly two-thirds of total hedge fund assets, were registered offshore. The most popular offshore location was the Cayman Islands followed by British Virgin Islands and Bermuda. The U.S. was the most popular onshore location accounting for 34% of the number of funds and 24% of assets. EU countries were the next most popular location with 9% of the number of funds and 11% of assets. Asia accounted for the majority of the remaining assets. ^{[citation needed]}

Onshore locations are far more important in terms of the location of hedge fund managers. New York City and the Gold Coast area of Connecticut (particularly Stamford, Connecticut and Greenwich, Connecticut) together are the world's leading location for hedge fund managers with about twice as many hedge fund managers as the next largest centre, London. This is not surprising considering that the US is the source of the bulk of hedge fund investments. London is Europe’s leading centre for the management of hedge funds. At end-2005, three-quarters of European hedge fund investments, totalling $300bn, were managed within the UK, the vast majority from London. Assets managed out of London grew more than fourfold between 2002 and 2005 from $61bn to $225bn. Australia was the most important centre for the management of Asia-Pacific hedge funds. Managers located there accounted for around a quarter of the $115bn in Asia-Pacific hedge funds’ assets in 2005. [1]

Hedge funds that have filed for IPOs have done so outside the United States. Although widely reported as a "hedge-fund IPO" [2], the Fortress Investment Group LLC IPO filed November 8, 2006 is for the sale of the manager, not of the hedge funds it manages.[3]

Regulatory Issues

Part of what gives hedge funds their competitive edge, and their cachet in the public imagination, is that they straddle multiple definitions and categories; some aspects of their dealings are well-regulated, others are unregulated or at best quasi-regulated.

US regulation

The typical investment company in the United States is required to be registered with the U.S. Securities and Exchange Commission (SEC). Mutual funds are the most common type of registered investment companies. Aside from registration and reporting requirements, investment companies are subject to strict limitations on short-selling and the use of leverage. There are other limitations and restrictions placed on investment company managers, including the prohibition on charging incentive or performance fees.

Funds that trade in commodities, which include many of the largest funds engaged in "macro" strategies, are registered with the Commodity Futures Trading Commission as commodity pools and as commodity trading advisors, or CTAs. In an address to the Securities Industry Association in 2004, Sharon Brown-Hruska, acting director of the CFTC, said that 65 of the top 100 funds in 2003 were commodity pools, and 50 out of the 100 largest hedge funds were CTAs in addition to being commodity pools.[4]

Although hedge funds fall within the statutory definition of an investment company, hedge funds elect to operate pursuant to exemptions from the registration requirements. The two major exemptions are set forth in Sections 3(c)1 and 3(c)7 of the Investment Company Act of 1940. Those exemptions are for funds with fewer than 100 investors (a "3(c)1 Fund") and funds where the investors are "qualified purchasers" (a "3(c)7 Fund"). [5] A qualified purchaser is an individual with over US$5,000,000 in investment assets. (Some institutional investors also qualify as accredited investors or qualified purchasers.) [6] A 3(c)1 Fund cannot have more than 100 investors, while a 3(c)7 Fund can have an unlimited number of investors. Both types of funds can charge performance or incentive fees.

In order to comply with 3(c)(1) or 3(c)(7), hedge funds are sold via private placement under the Securities Act of 1933. Thus interests in a hedge fund cannot be offered or advertised to the general public, and are normally offered under Regulation D. Although it is possible to have non-accredited investors in a hedge fund, the exemptions under the Investment Company Act, combined with the restrictions contained in Regulation D, effectively require hedge funds to be offered solely to accredited investors. [7]. An accredited investor is an individual with a minimum net worth of US$1,000,000 or, alternatively, a minimum income of US$200,000 in each of the last two years and a reasonable expectation of reaching the same income level in the current year.

The regulatory landscape for Investment Advisors is changing, and there have been attempts to register hedge fund investment managers. There are numerous issues surrounding these proposed requirements. One issue of importance to hedge fund managers is the requirement that a client who is charged an incentive fee must be a "qualified client" under Advisers Act Rule 205-3. To be a qualified client, an individual must have US$750,000 in assets invested with the adviser or a net worth in excess of US$1.5 million, or be one of certain high-level employees of the investment adviser. [8]

For the funds, the tradeoff of operating under these exemptions is that they have fewer investors to sell to, but they have few government-imposed restrictions on their investment strategies. The presumption is that hedge funds are pursuing more risky strategies, which may or may not be true depending on the fund, and that the ability to invest in these funds should be restricted to wealthier investors who are presumed to be more sophisticated and who have the financial reserves to absorb a possible loss. ^{[citation needed]}

In December 2004, the SEC issued a rule change that required most hedge fund advisers to register with the SEC by February 1, 2006, as investment advisers under the Investment Advisers Act.[9] The requirement, with minor exceptions, applied to firms managing in excess of US$25,000,000 with over 15 investors. The SEC stated that it was adopting a "risk-based approach" to monitoring hedge funds as part of its evolving regulatory regimen for the burgeoning industry.[10] The rule change was challenged in court by a hedge fund manager, and in June 2006, the U.S. Court of Appeals for the District of Columbia overturned it and sent it back to the agency to be reviewed. See Goldstein v. SEC.

Although the SEC is currently examining how it can address the Goldstein decision, commentators have stated that the SEC currently has neither the staff nor expertise to comprehensively monitor the estimated 8,000 U.S. and international hedge funds. See New Hedge Fund Advisor Rule. One of the Commissioners, Roel Campos, has said that the SEC is forming internal teams that will identify and evaluate irregular trading patterns or other phenomena that may threaten individual investors, the stability of the industry, or the financial world. "It's pretty clear that we will not be knocking on [hedge fund] doors very often," Campos told several hundred hedge fund managers, industry lawyers and others. And even if it did, "the SEC will never have the degree of knowledge or background that you do."^{[citation needed]}

Comparison to private equity funds

Hedge funds are similar to private equity funds in many respects. Both are lightly regulated, private pools of capital that invest in securities and compensate their managers with a share of the fund's profits. Most hedge funds invest in very liquid assets, and permit investors to enter or leave the fund easily. Private equity funds invest primarily in very illiquid assets such as early-stage companies and so investors are "locked in" for the entire term of the fund. Hedge funds often invest in private equity companies' acquisition funds.^{[citation needed]}

Between 2004 and February 2006, some U.S. hedge funds adopted 25 month lock-up rules expressly to exempt themselves from the SEC's new registration requirements. They now fall under the registration exemption drafted to exempt private equity funds.^{[citation needed]}

Comparison to U.S. mutual funds

Like hedge funds, mutual funds are pools of investment capital. However, the two structures have several differences, including:

• Mutual funds are regulated by the SEC, while hedge funds may not be
• A hedge fund investor must be an accredited investor with certain exceptions (employees, etc.)
• Mutual funds must price and be liquid on a daily basis

Additionally, mutual funds must have a prospectus available to anyone that requests them (either electronically or via US postal mail), and must disclose their asset allocation quarterly, while hedge funds do not have to abide by these terms. Hedge funds also frequently do not have daily liquidity, but rather "lock up" periods of time where the total returns are generated (net of fees) for their investors and then returned when the term ends, through a passthrough requiring CPAs and US Tax W-forms. Lots of people tolerate the nature of hedge funds over mutual funds because they usually generate higher total returns for their investors versus mutual funds.

Recently, however, the mutual fund industry has created products with features that have traditionally only been found in hedge funds.

Mutual funds have appeared which utilize some of the trading strategies noted above. Grizzly Short Fund (GRZZX), for example, is always net short, while Arbitrage Fund (ARBFX) specializes in merger arbitrage. Such funds are SEC regulated, but they offer hedge fund strategies and protection for mutual fund investors.

Also, a few mutual funds have introduced performanced-based fees, where the compensation to the manager is based on the performance of the fund. However, under Section 205(b) of the Investment Advisers Act of 1940, such compensation is limited to so-called "fulcrum fees".[11] Under these arrangements, fees can be performance-based so long as they increase and decrease symmetrically.

For example, the TFS Capital Small Cap Fund (TFSSX) has a management fee that behaves, within limits and symmetrically, similarly to a hedge fund "0 and 50" fee: A 0% management fee coupled with a 50% performance fee if the fund outperforms its benchmark index. However, the 125 bp base fee is reduced (but not below zero) by 50% of underperformance and increased (but not to more than 250 bp by 50% of outperformance. [12]

UK regulation

In recent years, HM Revenue and Customs, formerly Inland Revenue, has adopted interpretations of the tax laws that seem likely to keep many funds offshore. One change was in June 2005, The United Kingdom's Financial Services Authority published two discussion papers about hedge funds -- one concerning systemic risks, the other on consumer protection. Due to the same concerns, later in the year the FSA created an internal team to supervise the management of 25 particularly high-impact hedge funds doing business within the UK. ^{[citation needed]}

Another regulatory body, the Takeover Panel, is reportedly concerned about the use by hedge funds of instruments known as contracts for difference, which it worries may have opaque effects on mergers and acquisitions.^{[citation needed]}

Offshore regulation

Many offshore centers are keen to encourage hedge funds. To do this they offer some combination of professional services, a favorable tax environment, and limited regulation. Major centers include Dublin, Luxembourg, Cayman Islands and Bermuda. Hedge funds domiciled in all these centers are regulated, in the sense that there are rules that must be obeyed, but the rules are not in practice onerous and provide limited protection to investors.

Typical rules concern restrictions on the availability of funds to retail investors (Dublin), protection of client confidentiality (Luxembourg) and the requirement for the fund to be independent of the fund manager.

Privacy issues

As private, lightly regulated partnerships, hedge funds do not have to disclose their activities to third parties. This is in contrast to a fully regulated mutual fund (or unit trust) which will typically have to meet regulatory requirements for disclosure. The hedge funds are typically domiciled in an offshore jurisdiction, such as Bermuda, Cayman Islands, British Virgin Islands, where regulation of investment funds permits wider powers of investment (the Cayman Islands have been estimated to be home to about 75% of world’s hedge funds, with nearly half the industry's estimated $1.225 trillion AUM^[1]). Hedge funds have to file accounts and conduct their business in compliance with the less stringent requirements of these offshore centres. Investors in hedge funds enjoy a higher level of disclosure than investors in mutual funds including detailed discussions of risks assumed, significant positions, and investors usually have direct access to the investment advisors of the funds. This high level of disclosure is not available to non-investors, hence the notion of privacy attached to hedge funds.

A byproduct of this privacy and the lack of regulation is that there are no official hedge fund statistics. An industry consulting group, HFR (hfr.com), reported at the end of the second quarter 2003 there are 5660 hedge funds world wide managing $665 billion. To put that in perspective, at the same time the US mutual fund sector held assets of $7.818 trillion (according to the Investment Company Institute). ^{[citation needed]}

The combination of privacy and rich investors means that hedge funds are a target for criticism whenever markets move against some group's interests. For example, hedge funds were widely blamed for the speculative run-up in the bond market that preceded the global bond crisis of 1994, although the major players in the bond spree were actually large commercial and investment banks.^{[citation needed]}

Criticism

Relationships with analysts

In June 2006. the U.S. Senate Judiciary Committee began an investigation into the links between hedge funds and independent analysts, and other issues related to the funds. Connecticut Attorney General Richard Blumenthal testified that an appeals court ruling striking down oversight of the funds by federal regulators left investors "in a regulatory void, without any disclosure or accountability."[13] The hearings heard testimony from, among others, Gary Aguirre, a staff attorney who was recently fired by the SEC. [14] [15]

Systemic risk

Hedge funds came under heightened scrutiny as a result of the failure of Long-Term Capital Management (LTCM) in 1998, which necessitated a bailout coordinated by the U.S. Federal Reserve. Critics have charged that hedge funds pose systemic risks highlighted by the LTCM disaster.

The ECB (European Central Bank) has issued a warning on hedge fund risk for financial stability and systemic risk:

"... the increasingly similar positioning of individual hedge funds within broad hedge fund investment strategies is another major risk for financial stability which warrants close monitoring despite the essential lack of any possible remedies. This risk is further magnified by evidence that broad hedge fund investment strategies have also become increasingly correlated, thereby further increasing the potential adverse effects of disorderly exits from crowded trades." ECB Financial Stability Review June 2006, p. 142

The Times wrote about this review:

"In one of the starkest warnings yet from an official institution over the role of the burgeoning but secretive industry, the ECB sounded a note of alarm over the possible repercussions from any collapse of a hedge fund, or group of funds." Gary Duncan, Economics Editor, June 02, 2006

However, the ECB statement itself has been criticized by a part of the financial research community, some of their arguments can be found in this paper [16].

There were few notable casualties among hedge funds in the year 2006, whose go-anywhere investment approach is an invitation to mischief.[17]

Transparency Risk

Some hedge funds do not use a third party to custody their assets, which can lead to conflict of interest and even, in extreme cases, fraud. A recent example involves Kirk Wright, of International Management Associates, who stands accused of mail fraud and other securities violations SEC. [18] He faces criminal charges for allegedly defrauding clients of close to $180 million. He is accused of sending clients fake statements and absconding with their assets.[19]

Poor performance

Critics also maintain that hedge fund performance has suffered as aggregate asset sizes have climbed.

In 2005, Princeton University professor and noted financial theorist Burton G. Malkiel published a paper maintaining that hedge funds systematically underperform the market averages[20]. Malkiel contended that hedge fund indexes, particularly prior to 1995, were often statistically faulty and overstated hedge fund performance. Hedge funds, however, contested Malkiel's findings.[21]

Recent evidence suggests the myth of good performance in all markets is somewhat shaky even for fund of hedge funds. (Source:[22]). Although a fund may be market neutral this does not guarantee immunity to market falls. This is because when markets fall, investment is removed (for example into housing) and spreads widen. Wide spreads increase trading costs which are often substantial for arbitrage funds, resulting in a deterioration of performance for some funds. (On the other hand, wide spreads may present a new profit opportunity for funds acting more as market makers.)

Hedge funds may also simply bet wrong, with a high degree of leverage. In September 2006, a US fund Amaranth Advisors' natural gas trader lost roughly $6 billion of the firm's $9 billion assets on a series of ill-timed trades.

Hedge fund data

Top earners

Institutional Investor magazine annually ranks top-earning hedge fund managers. Earnings from a hedge fund are simply 100% of the capital gains on the manager's own equity stake in the fund plus 20% to 50% (depending on policy) of the gains on the other investors' capital.

The 2004 top earner was Edward Lampert of ESL Investments Inc. who earned $1.02 billion during the year (PR Newswire link).

The 2005 top earner was James Harris Simons with an earning of $1.5 billion according to Alpha magazine.^[2] However, Trader Monthly reported that Simons only earned about $1 billion and that the top earner was instead T. Boone Pickens with an estimated earning of over $1.5 billion during the year.^[3]

The full top 10 list of hedge fund earners according to Trader Monthly includes:

• 1. T. Boone Pickens - estimated 2005 earnings $1.5bn +
• 2. Steven A. Cohen, SAC Capital Advisers - $1bn +
• 3. James H. Simons, Renaissance Technologies Corp. - $900m - $1bn
• 4. Paul Tudor Jones, Tudor Investment Corp. - $800m - $900m
• 5. Stephen Feinberg, Cerberus Capital Management - $500 - $600m
• 6. Bruce Kovner, Caxton Associates - $500m - $600m
• 7. Eddie Lampert, ESL Investments - $500m - $600m
• 8. David E. Shaw, D. E. Shaw & Co. - $400m - $500m
• 9. Jeffrey Gendell, Tontine Partners - $300m - $400m
• 10. Louis Bacon, Moore Capital Management - $300m - $350m
• 10. Stephen Mandel, Lone Pine Capital - $300m - $350m

Notable hedge fund management companies

Sometimes also known as alternative investment management companies.

• Amplitude Capital (website)
• Andor Capital Management (website)
• Angelo, Gordon & Co. (website)
• Black River Asset Management (website)
• Bridgewater Associates
• Cheyne Capital (website)
• Camelot Global Investment (website)
• Citadel Investment Group
• Clinton Group (website)
• Cramer Berkowitz
• D. E. Shaw & Co.
• Denison & Porter (website)
• Eclectica Asset Management (website)
• Erste Bank Alternative Investments (website)
• Everest Capital (website)
• Estlander & Rönnlund
• Fortress Investment Group (website)
• Glacier Capital (website)
• GLG Partners (website)
• Goldman Sachs Asset Management
• Guidance Capital (website)
• Locust Capital
• Marathon Asset Management
• Moore Capital Management
• Och-Ziff Capital Management
• Peloton Partners LLP (website)
• Pequot Capital Management (website)
• Pirate Capital LLC
• Prosperity Capital Management (website)
• Renaissance Technologies
• SAC Capital Advisors
• Shoreline Capital (website)
• Sierra Enterprises Group (link)
• Soros Fund Management
• Superfund Group
• Tudor Investment Corporation (website)
• Vision Investment Management (website)
• MIR Investment Management (website)
• Sanborn Kilcollin Partners, LLC (website)
• Salus Alpha Group AG (website)

Top 30 funds of funds by size

Ranked by December 2005 Assets Under Management, not to be taken as the authoritative source given the intense privacy that surrounds much of the industry.

• UBS Global Asset Management (GAM) (London, UK and Stamford, CT) $45.0 billion ([23])
• Man Investments (London, UK and Pfaffikon, Switzerland) $35.6 billion ([24])
• Oaktree Capital Management Los Angeles, CA $35.6 billion ([25])
• Union Bancaire Privée (UBP) (Geneva, Switzerland) $20.8 billion ([26])
• HSBC Private Bank (Suisse) / HSBS Republic Investments (London, UK) $20.2 billion ([27])
• Och-Ziff (New York, NY) $19.8 billion
• Permal Asset Management (New York, NY) $18.8 billion ([28])
• Crédit Agricole Alternative Investment Products Group (Paris, France) $18.5 billion^{[citation needed]} ([29])
• Société Générale (Paris, France) $15.9 billion ([30])
• Quellos Capital Management (Seattle, WA) $15.0 billion ([www.quellos.com])
• Ivy Asset Management (Jericho, NY) $14.9 billion ([31])
• Grosvenor Capital Management (Chicago, IL) $14.7 billion ([32])
• Goldman Sachs Hedge Fund Strategies (Princeton, NJ) $14.2 billion ([33])
• Citadel Investment Group (Chicago, IL) $13.4 billion ([34])
• Financial Risk Management (FRM) (London, UK) $ 13.3 billion ([35])
• Pictet & Cie. (Geneva, Switzerland) $13.0 billion ([36])
• Avenue Capital (New York, NY) $12.0 billion ([37])
• Notz Stucki & Cie. (Geneva, Switzerland) $10.7 billion ([38])
• Davidson Kempner Capital Management (New York, NY) $10.1 billion ([39])
• Blackstone Alternative Asset Management (New York, NY) $9.3 billion ([40])
• Arden Asset Management (New York, NY) $9.2 billion ([41])
• Pacific Alternative Asset Management Co. (PAAMCO) (Irvine, CA) $8.9 billion]] ([42])
• J.P. Morgan Alternative Asset Management (New York, NY) $8.8 billion ([43])
• Mesirow Advanced Strategies (Chicago, IL) $8.2 billion ([44])
• Tremont Capital Management (Rye, NY) $8.2 billion ([45])
• CSFB Alternative Capital (New York, NY) $7.9 billion ([46])
• AIG Global Investment Group (New York, NY) $6.7 billion ([47])
• Harris Alternatives (Chicago, IL) $6.7 billion ([48])
• DB Absolute Return Strategies (New York, NY) $6.6 billion ([49])
• RBS Asset Management (London, UK) $6.5 billion ([50])
• Lehman Brothers Alternative Investment Management (New York, NY) $6.2 billion ([51])
• EIM (Nyon, Switzerland) $6.0 billion ([52])

InvestmentSeek.com has a listing of most fund of funds managers with their links ([53])

Managed Account Platforms

• Lyxor (website)
• Guggenheim (website)
• MSS (website)
• CASAM Group Managed Account Platform (website)
• Protege Financial Portfolio Builder (website)

Terminology

• Derivatives market
• Investment fund
• Venture capital

References

• Hedge Fund Amaranth wiped out by unhedged gas position losing $5+ billion
• "Hedge" Fund Amaranth to Close After loss of $6.5 of 9 billion on Unhedged Gas Bet

Further reading

• Lhabitant, François-Serge (2002). Hedge Funds: Myths and Limits. John Wiley & Sons. ISBN 0-470-84477-9.
• Lhabitant, François-Serge (2004). Hedge Funds: Quantitative Insights. John Wiley & Sons. ISBN 0-470-85667-X.
• Lhabitant, François-Serge (2004). Handbook of hedge Funds. John Wiley & Sons. ISBN 0-470-02663-4.

• Ineichen, Alexander M., Absolute Returns - Risk and Opportunities of Hedge Fund Investing, New York: John Wiley & Sons, 2003. ISBN 0-471-25120-8
• Ineichen, Alexander M., Asymmetric Returns - The Future of Active Asset Management, New York: John Wiley & Sons, 2006, forthcoming. ISBN 0-470-04266-4
• Weiss, Gary, Wall Street Versus America: The Rampant Greed and Dishonesty That Imperil Your Investments, New York: Portfolio, 2006. Argues that hedge funds tend to underperform market indexes and are excessively hyped by the media. ISBN 1-59184-094-5
• Hedge Fund Flameout
• Hedge Fund News Site
• Gregoriou, Greg (2006). Funds of Hedge Funds. Butterworth-Heineman, an imprint of Elsevier. ISBN 0-7506-7984-0.
• Nelken, Izzy (2005). Hedge Fund Investment Management. Butterworth-Heineman, an imprint of Elsevier. ISBN 0-7506-6007-4.
• Kessler, Andy (2004). Running Money : Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score. Collins. ISBN 0-06-074064-7.

• Drobny, Steven (2006). Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets. Wiley. ISBN 0-471-79447-3.

• Reuter's quarterly survey on Fund of Hedge Fund managers' outlook for the main hedge fund strategies.

External links

Hedge fund research

• Edhec Risk and Asset Management Center of the EDHEC Business School
• FINalternatives.com
• Hedge Fund Alert
• Hedge Fund Research Initiative of the International Center for Finance at the Yale School of Management
• Hedge Fund News Site

Indices

• CSFB Credit Suisse/Tremont Hedge Fund Index
• FTSE Hedge Indices
• DOW Jones Hedge Fund Indexes
• EDHEC Alternative Indexes
• Eurekahedge Indices
• HFRI Monthly Performance Indices
• HFRX Indices
• HFN Real Time Averages
• Hedge Fund Consistency Index

Trade associations

• Alternative Investment Management Association (AIMA)
• the Hedge Fund Association (HFA)
• Managed Funds Association (MFA)

Other links

• Harvard Business School's Baker Library Guide to Hedge Funds
• SECLaw.com's Hedge Fund Information Center
• Hedge Funds vs. Mutual Funds
• Hedge Funds 101: A Primer For Regulators; Commodity Futures Trading Commission, Nov. 30, 2004
• The long and short - The Guardian, September 24 2005 - This article explains hedge funds in layman's terms, why they are of interest to the general reader and contains interviews with fund managers.
• Hedge Fund News Site
• What is a Hedge Fund? University of Iowa Center for International Finance and Development
• Institutional Investors 2004 Ranking
• Hedge Funds: Risk and Return, study by Prof. Burton G. Malkiel critical of published hedge fund performance numbers
• http://www.hdmgmt.co.uk/gam.html Case Study of ISO 9001 investment process project at a significant hedge fund
• http://www.cisdm.org Center for International Securities and Derivatives Markets at the University of Massachusetts is a research center specializing in hedge fund research
• How to Set Up Your Own Hedge Fund and Due Diligence, Disclosure and Fund Managers - by Hannah Terhune, JD LLM (Taxation, New York University)