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...