Hedge Funds Dissected: Perspectives and Proposals
Few areas of the investment world have proved more intractable to formal, scholarly exploration than the $2 trillion hedge fund sector, primarily because hedge funds remain relatively free from regulatory oversight and are thus not required to furnish information regarding their activities. Professor Andrew Lo is one of the intrepid few to delve into the mysteries of the seemingly impenetrable world of private investment funds. Noting that hedge funds have begun to attract the attention of institutional investors (such as pension funds) because of hedge funds’ past performance and unique capabilities, Professor Lo in this volume argues for the development of a systematic framework of portfolio analytics and risk management protocols specifically for managing exposure to hedge funds. In view of observations that hedge funds, because of their sheer presence in the financial ecosystem, contribute significantly to systemic risk, the author believes that the creation of a special hedge fund oversight group, a capital markets safety board with powers akin to those of the US’s National Transportation Safety Board, would be necessary in order to promote hedge fund transparency and overall financial security. The establishment of such a body, it is hoped, would help avert future LTCMs. ( )