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The Economists' Voice 2.0The Financial Crisis, Health Care Reform, and More$
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Joseph Stiglitz and Aaron Edlin

Print publication date: 2014

Print ISBN-13: 9780231160155

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160155.001.0001

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PRINTED FROM COLUMBIA SCHOLARSHIP ONLINE (www.columbia.universitypressscholarship.com). (c) Copyright University of Minnesota Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CUPSO for personal use.date: 16 May 2022

Hedge Fund Wizards

Hedge Fund Wizards

(p.125) Chapter 15 Hedge Fund Wizards
The Economists' Voice 2.0

Dean P. Foster

H. Peyton Young

Columbia University Press

This chapter discusses risks of investing in hedge funds. Investors are not allowed to know how hedge funds work, every fund is different, and they offer no warranties. In fact, it is quite easy for a hedge fund manager to “fake” high performance over an extended period of time without getting caught. Hedge fund managers get paid for making bets that put their investors at risk, while taking very little risk themselves. If the fund blows up, the investors cannot tell whether it was due to bad management or just bad luck. However, some steps can and should be taken toward protecting investors. All hedge funds should be required to register as soon as they are established and to report their returns on a regular basis. Such tracking would allow potential investors to study the records. Alternatively, managers could guarantee that losses not exceed a certain level, similar to a car manufacturer offering a warranty.

Keywords:   investors, hedge funds, investments, hedge fund managers, financial regulation

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