Asset class: hedge funds
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What specifically is a hedge fund? Why is it difficult to define hedge funds as a specific asset class?
Should hedge funds be more regulated or is limiting hedge funds to "sophisticated" investors sufficient?
How would you conduct an attribution analysis of a hedge fund manager? What obstacles currently exist with hedge fund manager performance evaluation.
How would you address hedge funds in a client's investment policy statement?
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Solution Summary
This solution goes through what hedge funds are, and why it is difficult to define them as a specific asset class.
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Hedge Funds
* What specifically is a hedge fund?
Unlike regular mutual funds for average folks, hedge funds are more sophisticated, privately managed by precise specifics, and require an average investment of roughly one million dollars (income minimums must be met in order to participate).
* Why is it difficult to define hedge funds as a specific asset class?
It may be difficult to define hedge funds as a specific asset class because all hedge funds are different. Classifications range from aggressive growth, distressed securities, funds of funds, emerging markets, macro, income, opportunistic, and more. Some are able to provide regular returns on investment with low risks, and others are significantly more volatile.
* Should hedge funds be more regulated or is limiting hedge funds to "sophisticated" investors sufficient?
Hedge funds should be more regulated ONLY if its investors deem that necessary. Perhaps sophisticated investors prefer deregulation for their unique strategies.
See: http://docs.google.com/gview?a=v&q=cache:0vZ_B0lcNN4J:www.cfainstitute.org/centre/topics/pdf/euromoney_article.PDF+How+would+you+address+hedge+funds+in+a+client's+investment+policy+statement&hl=en&gl=us&sig=AFQjCNElfUTF9O1ku8TrEMOIh3QjHD7Hdw
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