Investor concerns in 2007

Wed Apr 4, 2007




Joel Katzman

Investors have long since shifted their focus from counting profits generated in 2006 to navigating a less certain 2007. While many anticipate a relatively benign environment - albeit one with lower returns - a number of concerns impact the outlook for hedge fund investors.

Specific trends such as rapid growth in assets under management, accelerated institutionalisation of the industry and a related supply/demand imbalance have resulted in a number of major developments in the hedge fund industry. These include an erosion of alpha, increased equity beta across strategies, a corresponding increase in correlations among strategies and the introduction of more stringent liquidity terms by managers. Add into the mix the possibility of a sharp reversal in current macro-economic and market-driven conditions of excess global liquidity, extremely low risk premiums and market optimism. That combination is precisely what hedge fund investors need to concern themselves with in 2007. And, even if...

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