How big is the risk of a 'blowup'?

Wed Oct 1, 2003

The evidence shows that hedge funds aren't more dangerous than mutual funds or private equity

Think hedge funds and most people outside the industry immediately think of high risk and 'blowups'. But is the reputation deserved? Are hedge funds in fact any more dangerous than investing in a mutual or private equity fund? Latest research shows that hedge funds may not be nearly as high risk as their reputations suggest and that mutual funds and private equity are definitely not as safe as you might expect.

Yet, month after month, there seems to be a steady drip-feed of hedge fund disasters, some pretty spectacular such as Long Term Capital Management in 1998. More recently there have been failures like Beacon Hill, Lancer, Manhattan, and more recently Eifuku and Durus, help to cement the perception of risk in the public psyche.

One of the problems of making direct comparisons between investment...

ISSN: 2151-1845 / CDC10004H

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