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Hedge Funds Ate My Money: Facts and Fantasies in Alternative Investments
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Contents
- In Fashion?
- Keeping Up with the Joneses
- The Rise and Rise of Hedge Funds
- Style Gurus
- Fees for All
- Risk? What Risk?
- “Embedded”
- More Money Than You Know What Do With?
- Woodstock for Hedge Funds
- The Fall of Hedge Funds?
- Whos in Charge?
- Hedge Funds Ate My Lunch?
- References
Article Description
Hedge funds have been around for 50 years, but they’re not well understood. Satyajit Das removes some of the murk from this corner of the financial universe, clarifying what you need to know about the history and the reality of hedge funds (and hedge fund managers).
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Risk? What Risk?
Hedge fund returns are hot. Based on the fee structure, you paid for a Ferrari—not some anemic, environmentally correct hybrid!
Some hedge funds have shown high returns. There are wide divergences between the best- and worst-performing funds. Long-run returns are clouded by the “survivorship bias”—that is, many hedge funds have perished along the way. High returns require that you select the better-performing funds.
You need to consider the sustainability of returns. Macro funds were beneficiaries of the confluence of specific factors: the integration of emerging economies into global markets, the end of communism in Eastern Europe, the growth of world trade, and deregulation of financial markets such as currencies and interest rates. These epochal events were once-in-a-lifetime occurrences that created trading opportunities. For example, Soros’ triumph in breaking the pound was predicated on the collapse of a highly flawed system of currencies. In 1997-98, hedge funds made substantial returns when similarly pegged currencies fell apart. This can be seen in the varied fortunes of macro funds in recent years. Some have prospered, but many funds, included the fabled Quantum and Tiger Funds, have restructured or disappeared.
Relative-value hedge funds were beneficiaries of similar events. LTCM’s early success was linked to opportunities related to the creation of a single European currency and tax arbitrage opportunities. Relative-value funds benefited in the 1990s from the introduction of new and innovative products that few understood and fewer had the skills and systems to value. The shrinkage of opportunities has forced relative-value funds to migrate into new areas—credit being the major one.
Hedge funds may offer investors 15–20% p.a. returns with minimal risk—but such funds are far riskier than the risk statistics reveal. The systems used don’t actually capture the real risks. Investors use Sharpe or information ratios to measure performance. Assume that Treasury bills yield 5% p.a. Further assume that hedge fund A has an annualized return of 20% with a volatility of 10%, and hedge fund B has a return of 15% with a volatility of 5%. The Sharpe ratios, are, respectively:
- Hedge fund A = [20% – 5%] / 10% = 1.5
- Hedge fund B = [15% – 5%] / 5% = 2.0
Hedge fund B, despite its lower absolute performance, provides the investor with greater returns relative to risk than hedge fund A.
Sharpe ratios are flawed. They are ex post (based on actual risk) rather than ex ante (expected risk). Actual risk return achieved should be compared to the risk that was known to be taken at the time the position was taken. This generally shows higher risk and lower risk-adjusted returns.
There are alternative risk models. The Sortino ratio, a variation of the Sharpe ratio, focuses only on adverse price changes, using deviation below a specified level. A personal favorite is “drawdowns”—a euphemism for actual losses incurred and the cash that must be found to cover a peak-to-trough change in the fund’s position.
The real risks of hedge funds are correlation risk, liquidity risk, and complexity or model risk. Unsurprisingly, traditional systems are poor at capturing these risks. Traders, whether in hedge funds or otherwise, are extremely skilled in arbitrage—internal arbitrage. Traders arb the internal risk metrics to inflate risk-adjusted returns on which their bonuses are based. Nature abhors a vacuum.
- Correlation risk. Hedge funds should show low risk—remember, they’re simultaneously long and short securities. If the prices move identically, then the gains and losses will cancel out, leaving zero return where the portfolio of long and short positions are perfectly balanced. For the fund to make money, the price relationship between the long and short securities must change—correlation has to shift. Correlation may move unfavorably—the asset where you’re long falls in value and the asset where you’re short rises in value, triggering losses. Many hedge fund strategies are effectively correlation positions, where the risks are not properly captured.
- Liquidity risk. Liquidity risk is the inability to sell out of or continue to finance positions. Hedge fund trading assumes liquidity risk. The position may be large. The assets held are illiquid. The liquidity risk is compounded by leverage. Hedge funds generally trade on margin—putting up a small fraction of the value of the asset as collateral. If prices fall, the hedge fund is required to post more collateral. If losses on the leveraged position exceed the hedge fund’s ability to meet margin calls, the position is liquidated, realizing losses. This severely limits the holding power of hedge funds. Risk models assume “perfect” liquidity.
- Complexity or model risk. Hedge funds now use complex securities and derivatives in their trading. They use computers and sophisticated quantitative models to value and hedge positions. The models are highly subjective. They’re sensitive to minor changes in parameters and inputs. There may be no transparent market in inputs, making them difficult to value. Mark Twain provides the definitive view on “model risk”: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”A number of hedge funds have suffered terminal losses in mortgage-backed securities. Model failure was a factor in many of these losses. Currently, some funds trade CDO2—that is, a CDO of a CDO, a complex instrument. Different funds use different models. Recently, I had to get market prices for some CDO2 securities. There was no market to speak of, and wide variation in prices. Masters of the Universe don’t measure model risk when quantifying risk.
Many hedge fund trades seek to buy or sell “mispriced” securities. The position is hedged by an offsetting trade using similar securities. The idea is that the values will converge. The market prices may correct, allowing the trader to unwind his trades at a profit. If the market prices don’t correct, the trader must hold the position through to maturity to realize the profit. The holding period can be long, very long—on the order of 30 years. Hedge funds have short risk horizons—no longer than 6–12 months. Changes in mark-to-market values, the resulting margin calls, and the investor’s right to redeem capital periodically make it difficult to manage this risk. Leverage, liquidity risk, and complexity are lethal companions.
LTCM liked to arbitrage small value differences between similar securities. The returns were small, so LTCM typically leveraged the trades to increase returns. After the Asian crisis, credit spreads (the margin above government bonds for additional risk) blew out well above what was needed to cover the actual risk of people not paying up. LTCM wanted to lock this in and leverage the position.
LTCM entered into interest-rate swaps where they received fixed rates, getting government bond rates plus a margin (credit spread). Then they went short government bonds on the other side, paying the government rate. LTCM effectively locked in the credit spread. They leveraged the position massively. The game depended on the spread getting smaller (convergence) or holding the position to maturity (10 years). Unfortunately, the spread kept getting wider. Interest rate swaps rose, and government rates fell. LTCM now had losses on both legs of the trade. They had to find cash to cover their losses, and they ran out of money. The LTCM principals witnessed firsthand the truth of John Maynard Keynes’ observation: “There is nothing so disastrous as a rational investment policy in an irrational world.”
In 2006, emerging markets took a hit. Market-neutral hedge funds losses mirrored the fall in the market. A short memory and a rising market generally passes for investment genius. One hedge fund manager explained: “Everything in the market was a compelling buy. We could find nothing to short.”
Over 50% of the hedge funds that fund-of-funds managers invest in have been in existence for less than 2 years. The majority of hedge funds are small—less than 10 staff. The operational risk and key personnel dependency is high.
In 2006, Amaranth, a multi-strategy hedge fund with around $9 billion under management, lost $6 billion in natural gas trading. [4] In 2005, Brian Hunter, a 32-year-old Canadian, made a bet that natural gas futures would rise. Surging gas prices following Hurricane Katrina made large trading gains for the fund, and Hunter was named head of Amaranth’s energy trading operations.
He placed a similar bet in 2006, but natural gas prices fell sharply, triggering losses. Amaranth’s positions were staggeringly large, representing around 10% of the global market in natural gas futures. Amaranth ultimately discontinued operations. A spokesman for the hedge fund made the following observation regarding the losses: “We did not expect that the market would move so aggressively against our positions!”
“Embedded”
In his book Hedge Funds: The Courtesans of Capitalism, [5] Peter Temple compares hedge funds to courtesans—high-class prostitutes whose clients are drawn from the wealthy or upper classes. If hedge funds are the prostitutes (the girls), then the banks are clearly the pimps and bordello keepers.
Creating hedge funds to house trading activities “off balance sheet” solves many problems for banks. The introduction of capital controls on trading in 1994 made it punishable for banks to hold trading positions on balance sheet. Hedge funds also alleviate the problem of attracting and remunerating “gun” traders. Bank shareholders, regulators, the public at large, and bank CEOs react negatively to large payments to traders, especially when it exceeds their own salaries. The hedge funds are also able to leverage more than the banks themselves.
Banks help set them up hedge funds, invest in them, and trade with them. A whole new service, “prime brokerage,” combines settling and clearing hedge fund trades, execution services, and financing hedge funds. Investment banks have set up “incubators” to help budding traders create hedge funds. The services include training in etiquette and investor relations to communicate properly with investors.
Banks also design products around hedge funds, such as capital-guaranteed hedge fund investments for risk-averse investors—you can’t lose your principal, although you may end up earning nothing on your investment for 10 years. This type of investment helps explain why, in the words of Groucho Marx, many investors in hedge funds “work [themselves] up from nothing to a state of extreme poverty.”
Dealers love hedge funds. Dealers earn from hedge funds at around 30–40% plus of their total earnings. The bulk of earning is from lending money to hedge funds. No bank, at least I think, would lend to hedge funds. Lending is made possible through repurchase agreements (repos) and derivative trades.
In a repo, the bank lends money against the value securities held or sold short by the hedge fund. The value of the security (collateral) secures repayment. Derivatives don’t require initial investment, just a promise to perform in the future. The promise is secured by the hedge fund’s lodging cash or securities. The collateral is increased or reduced as market prices change to ensure adequate coverage. This is no-risk lending—regulators don’t require banks to hold capital against these transactions.
If a position moves adversely, the bank will require the hedge fund to lodge more collateral—a margin call. What happens if they can’t come up with it? In order to reduce risk, banks use a “haircut”—over-collateralization to ensure that it has a buffer if the hedge fund cannot meet a margin call. Banks are under competitive pressure to reduce the haircut. LTCM didn’t require any haircut at all; it was “special.” Writing in the Wall Street Journal, Holman Jenkins observed, “Would hedge funds even exist without a fatty dollop of moral hazard somewhere along the great protein chain of lending?” [6]
The setting of the haircut is flawed. To cover their risk, banks must estimate the worst-case daily change in value of the positions. This is art, not science. Hedge fund strategies have “event” risk when the value of the position could change a lot.
The relationship between dealers and hedge funds is littered with moral hazards. Senior executives at many banks were personal investors in LTCM. Some were involved in negotiating the bailout. It’s all part of the “special” relationship.” [7]
Banks love dealing with successful hedge funds so they can copy from the “best and brightest.” Banks have internal hedge funds that work closely with special sales desks that service hedge funds. Some had been created specifically to serve LTCM. They worked out LTCM’s trading strategies and then did the trades for their own account. When risk limits were full, they marketed the same strategies to other banks and hedge funds.
When the storm hit in mid-1998, all the traders found that they had put on the same trades. LTCM were perhaps the only ones who were not aware of this. Louis Bacon, the principal of Moore Capital, once remarked, “There are those who know that they are in the game; there are those who don’t know they are in the game; and there are those who don’t know they are in the game and have become the game.” [8] In the end, LTCM was the game.
Under stress conditions, prices are affected by illiquidity. Sometimes, prices are unavailable. The valuation of positions are often very conservative, triggering larger mark-to-market losses, necessitating more collateral. Mark Twain observed, “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” To this day, LTCM swears that the banks manipulated the prices to force them out of business.
Even if the hedge fund goes under, banks can make money by buying the positions at an “undisclosed” (read: “distressed”) price. They make money from unwinding the position. Banks provide a true cradle-to-grave service for hedge funds.
8. More Money Than You Know What Do With?
More Money Than You Know What Do With?
Hedge fund managers are the new elite. Brian Hunter, responsible for energy trading at Amaranth before it imploded, earned $75–$100 million in 2005. This, by the by, only ranked him a middling 29th-highest paid in his profession, according to Trader Monthly. [9] One hedge fund manager earned $1 billion in 2005! [10] Apparently money isn’t important; it’s just a scorecard of success.
Having more money than you can possibly spend creates new challenges for the Masters of the Universe. Billionaire hedge fund managers bid up the price of luxury apartments and modern art. Michael Steinhardt owns a large estate containing exotic wildlife. He was seeking to collect every duck and swan variety in the world.
Hedge funds managers are often generous donors to charities—tax deductible, of course. There is the paradox of charity—how enrichment by a variety of means paves the way for conspicuous generosity. George Soros supports free markets and democratic initiatives in Eastern Europe. Detractors question whether it has anything do with the fact that hedge funds are beneficiaries of the opening up of these economies. Some “donations” are also “involuntary,” to settle antitrust and securities charges.
Hedge fund managers are generally secretive. Paradoxically, some hedge fund managers brazenly seek acceptance as “thought leaders.” George Soros has written many books—The Alchemy of Finance: Reading the Mind of the Market, Staying Ahead of the Curve, The Crisis of Global Capitalism: Open Society Endangered. He thinks of himself as a “financial and philosophical speculator,” says Peter Temple. [11]
The centerpiece of Soros’ musings is “reflexivity.” Markets don’t tend toward equilibrium; markets feed on their own misconceptions to produce exaggerated price changes until they reach an “inflexion point” when it changes. Soros suggests following the trend and selling as it reaches the peak. This advice takes about 400 pages. In the December 1998 issue of The Economist, the following review of The Crisis of Global Capitalism appeared. [12]
Because of who he is there will always be buyers for his books, publishers for his books, and cash-strapped academics to say flattering things about his books. None of this alters the fact that his books are no good…. A remarkable thing happens to money when it passes through Mr. Soros; it emerges multiplied, but otherwise unchanged. With other inputs the results are more disappointing—to be blunt, more in line with biology. Mr. Soros gorged on chopped philosophy, mashed economics, and fact and figures swimming in grease. It was too much. Before he knew what was happening out rushed this book.
Woodstock for Hedge Funds
The hedge fund industry’s search for acceptance has reached new realms. In 2006, the industry staged “Hedgestock.” [13] The title paid homage to Woodstock—the historic three days of peace, love, promiscuity, music, drugs, and shockingly bad dancing. Hedgestock was to be two days (nobody could afford three days in this time-challenged age) of networking and finance. Adam Smith understood networking: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in conspiracy against the public, or in some contrivance to raise prices.” [14]
The hippies had celebrated their counterculture movement at Woodstock. Hedge fund managers are keen to advertise that they were the vanguards of the “alternative” movement—”alternative investments,” that is! It was the dawning of the age of hedge funds, not the age of Aquarius.
The Fall of Hedge Funds?
Hedge funds have underperformed more traditional asset classes such as equities in recent years. Investors always chase yesterday’s returns. Adjusted properly for risk and the absence of liquidity, hedge funds return at best no more than—and frequently less than—traditional assets.
A recent study found that hedge fund performance doesn’t appear to deliver alpha consistently. [15] There are exceptions, but they’re few and far between. Many of the really good hedge funds are closed to investors. Even where you can invest, the flow of funds into better-performing funds rapidly erodes returns. Too much money is chasing too few opportunities. Clever people can make money if there are only a few clever people and lots of opportunities. This is scalability—what works on a small scale cannot work on a larger scale. In 2004, Hilary Till argued that the maximum size of the hedge fund industry was 6% of institutional (and high net worth) assets. [16] There are other constraints. Some hedge fund strategies need liquid markets and a complete set of instruments. There are few such markets.
Ultimately, if you make money from inefficiency, someone—other investors—must supply the inefficiency. We cannot all exploit inefficiencies, as nobody would be supplying the market inefficiency in the first place. To be “alternative,” there has to be a majority; the alternative cannot be the majority.
Hedge funds with certain areas of expertise began to trade in other markets as opportunities became limited, creating “style drift.” LTCM had drifted from their métier—relative-value trading in fixed income—into volatility trading, credit-spread trading, and merger arbitrage. Lack of disclosure meant that you didn’t know how far the ship was off course until it was on the rocks. Cases of fraud and other common crimes had also begun to surface.
Smart investors know that there’s no money to be made from investing in hedge funds. In investing, the majority is always wrong. The focus is now “incubators”—venture capital for hedge funds. They identify traders, seed startups, and allow them to establish a track record. Once established, the hedge fund seeks third-party funding, allowing the original investors to exit. They retain the real money—a free carry or shareholding in the general partner or fund manager. Incubators are only open to the really rich and connected.
The hedge fund universe is overheated. At the suggestion of a “bubble,” one hedge manager bristled that hedge funds weren’t an “asset class,” and therefore there was no “bubble” to burst—only asset classes experienced bubbles. Another hedge fund apologist argued that all funds managers in the future would be hedge funds. The semantics aren’t reassuring.
Hedge funds are also under attack from clones. Hedge fund performance doesn’t depend significantly on skill, nor is it as distinctive as the Masters of the Universe claim. In fact, hedge fund returns can be replicated using readily available instruments such as equity index futures and corporate bonds. [17] Banks are starting to clone hedge funds using precisely these instruments. [18] The advantage for investors is lower fees, with the risk of blowups like Amaranth or LTCM. The clones are not the real thing—they’re cheap reproductions. Some analysts argue that the replication models are flawed, though they have their own version that works.
Who’s in Charge?
As John Kenneth Galbraith observed, “In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.” Regulators see hedge funds as providing essential liquidity and distributing risk more efficiently, reducing risks of a major financial shock. There is also a ideological element. In the aftermath of the Asian crisis, economist Robert Wade wrote, “[Greenspan] and other U.S. officials see it as imperative to make sure that the troubles in Asia are blamed on the Asians and that free capital markets are seen as key to world economic recovery and advance; the idea that international capital markets are themselves the source of speculative disequilibria and retrogression must not be allowed to take root.” [20] Bailouts of troubled banks in developed countries are naturally not contrary to free market principles.
In theory, hedge funds remove risk from regulated banks. But banks are deeply embedded in the hedge fund industry. The only significant control is on lending to or entering into derivative trades with hedge funds using collateralization to manage risk. Writing in the Motley Fool Internet Bulletin Board, Lou Corrigan noted, “Alan Greenspan was mistaken in believing that the largely unregulated hedge fund industry can be effectively controlled by regulating creditors. […]Creditors can be just as prone to greed as the latest wizard of Wall Street, but they are often the last to understand the risks that would ordinarily help fear counterbalance greed.” [21]
Benign neglect is giving way to concern. Timothy Geithner, president of the Federal Reserve Bank of New York, has warned that the changes in markets may make financial crises less common but more severe. Australia’s Reserve Bank governor Glenn Stevens has speculated that, in crises, hedge funds are users rather than providers of liquidity. The UK’s Financial Services Authority has identified conflicts of interest as well as operational risks in the relationship between banks and hedge funds.
Hedge Funds Ate My Lunch?
There is a temptation to dismiss the Masters of the Universe, their culture of risk, the hedge funds, and the extreme money games as peripheral to “real life.” After all, fast and foolish money will always find a way to play extreme sports. Isn’t it just a case of a few rich investors playing around with their courtesans and getting more excitement than they bargained for?
Not really. Hedge funds affect all of us—directly and indirectly. Your money—your savings, your retirement funds, the money you invest in banks—increasingly finds it way into the hands of hedge funds. Corporate or government pensions and defined-benefit schemes are a thing of the past. The investment performance of hedge funds—preservation of capital and returns—will shape your senior years and the ability of your company pension funds to meet their liabilities.
Hedge funds also affect us indirectly. In 1997, attacks on the overvalued currencies of Asian countries helped bring about deep recessions, resulting in the collapse of companies, massive unemployment, and social unrest. Malaysia’s prime minister Mahathir blamed hedge funds. “It was greed; a kind of greed that cares nothing for the destruction caused for the collapse of perfectly healthy and prosperous economies, greed that thrives on the misery of others.” [22]
Mahathir did not refer to the poor government, crony capitalism, and corruption that created the conditions for the problems. But the activities of hedge funds undoubtedly exacerbated the severity of these problems. Hedge funds may have colluded in manipulating markets to maximize their returns. In the event of a major shock, hedge funds will sharply increase volatility and the severity of any adjustment.
Any major problems in the hedge fund industry will ultimately affect the stability of the banks and the financial system itself. Hedge funds trade with banks. Banks provide the leverage that hedge funds use. Hedge funds don’t really disperse risks. They increase and concentrate them.
In recent years, there have been warnings: the turmoil in the credit market in 2005 when General Motors and Ford were downgraded; the emerging market correction in mid 2006; the collapse of Amaranth in 2006. Commentators have seized these situations to illustrate the robustness of the system. Banks and financial systems emerged seemingly unaffected.
But banks and hedge funds sustained significant losses in each episode, which were absorbed by profits or gains in other activities. Low cost of money allowed the problems to be handled without a meltdown. The markets also recovered, helped by traders’ increasing positions, assuming the correction was a “buying” opportunity at “better price levels.” Banks sometimes merely bought the portfolio from the distressed hedge fund to avoid potential losses from a forced liquidation of the position. The bank was getting the positions at attractive price levels and hoped they could trade their way out of it.
The greatest concern is concentration of risk. Shortage of trading opportunities means that traders—both in hedge funds and banks—focus on “events”—the emergence of the BRIC economies; commodity prices; corporate actions (mergers, leveraged buyouts, and bankruptcy). There are innovations—volatility swaps (bets on the level of volatility), correlation swaps (bets on correlation), and gamma/dispersion swaps (bets on both volatility and correlation). Hedge funds use them to further leverage up their bets on the “big” stories. The tremendous volatility created by relatively minor events points to the explosive buildup of risk concentration.
Matthew Lynn, writing in UK’s Sunday Business, warned, “[T]he risk to the stability of the world’s financial system posed by the existence of these massive vehicles has not gone away. We have chosen, in the main, not to think about it—in the same way that wives sometimes choose not to think about whether their husbands are really working late at the office. The implications of thinking about it are just too scary.” [23]
Courtesans have played pivotal roles in the rise and fall of empires. Hedge funds may yet play such a role. If a major event occurs, the effect on the Masters of the Universe and the extreme money games may seriously damage financial systems and economies, and taxpayers will bear the losses. Australian economist Ian Macfarlane commented, “Hedge funds have become the privileged children of the international financial scene, being entitled to the benefits of free markets without any of the responsibilities.” [24] Yet the popular investment consensus is that hedge funds, alternative investments, should be a part—indeed, a growing part—of your investment strategy.
Huge structural imbalances in the world, an excess of investment capital chasing returns, and the gradual withdrawal by central banks of the liquidity that has fed recent growth are capable of triggering the problem. How far off is that event? Economists only exist to make climatologists look good. I’ll tell you after the event.
In any major global city today, you can find homeless people sleeping rough. They are the dark underbelly of capitalism. If you look into their eyes, you see resignation, hopelessness, despair, and occasionally defiance. Why are they there? Substance abuse, mental illness, just sheer bad luck. But I fear a future when many us will be on the streets. Etched into the tattered piece of cardboard will be our story: “Please help. Hedge funds ate my money!”
References
[1] Martin Baker, A Fool and His Money: How to Understand the Money Markets and Those Who Work in Them (Orion Publishing, 1995).
[2] Tom Wolfe, The Bonfire of the Vanities (Bantam, 1987).
[3] Alan Kohler, “Hedging Your Bets for a Life Less Ordinary,” Weekend Edition Sydney Morning Herald, 5–6 August 2006.
[4] See “Flare-up,” The Economist, 21 September 2006.
[5] Peter Temple, Hedge Funds: The Courtesans of Capitalism (John Wiley & Sons, 2001).
[6] Holman W. Jenkins, “How a Cat Becomes a Dog,” Wall Street Journal, 5 April 2000.
[7] Merrill Lynch, Bear Stearns, and Paine Webber senior executives are understood to have invested in LTCM. See Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management (Random House, 2001).
[8] Quoted in [5].
[9] See [4].
[10] The manager is reputed to be Jim Simons of Renaissance Technologies; see [3].
[11] See [5].
[12] Quoted in [5].
[13] See Stephen Schurr, “Hedge Funds Jump on Hippie Bandwagon,” Financial Times, 3–4 June 2006; Penny Wark, “Selling Themselves Short,” The Times, 9 June 2006; The Economist, “Tune On, Tune In, Meet Clients,” 10 June 2006.
[14] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Methuen and Co., Ltd., 1776).
[15] William Fung, et al., “Hedge Funds: Performance, Risk, and Capital Formation,” 19 July 2006.
[16] Hilary Till, “On the Role of Hedge Funds in Institutional Portfolios,” Journal of Alternative Investments, Spring 2004.
[17] See Jasmina Hasanhodzic and Andrew W. Lo, “Can Hedge-Fund Returns Be Replicated? The Linear Case,” 16 August 2006.
[18] See H. Kat and H. Palaro, “Who Needs Hedge Funds? A Copula-Based Approach to Hedge Fund Return Replication,” “Replication and Evaluation of Fund of Hedge Fund Returns,” “Superstars or Average Joes? A Replication-Based Performance Evaluation of 1917 Individual Hedge Funds,” “Tell Me What You Want, What You Really, Really Want! An Exercise In Tailor-Made Synthetic Fund Creation Alternative,” all working papers of the Investment Research Centre, Cass Business School, City University, London.
[20] Robert Wade, “The Asian Economic Crisis and the Global Economy,” quoted in [5].
[21] Quoted in [5].
[22] Quoted in [5].
[23] Matthew Lynn, “Financiers Play with Fire Again,” Sunday Business, 9 April 2000.
[24] Quoted in [5].
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