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Hedge Funds, Humbled: The 7 Mistakes That Brought Hedge Funds to Their Knees and How They Will Rise Again
Hedge Funds, Humbled: The 7 Mistakes That Brought Hedge Funds to Their Knees and How They Will Rise Again
Date: 27 April 2011, 08:50

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The fall and rise of a trillion-dollar industry
Just three years ago, hedge funds were at the top of the investment world. Years of unparalleled growth had pushed assets to nearly $3 trillion. Leverage was used so aggressively that total long and short investments approached an astonishing $10 trillion. Thousands of new funds had sprouted in every corner of the market, and managers, enjoying an almost unimaginable pool of fees, were dubbed the new “masters of the universe.”
Then came 2008.The industry suffered its worst performance ever, losing $600 billion or roughly 20% in a single year. Multibilliondollar hedge funds collapsed overnight, epic frauds were revealed, and assets plummeted as spooked investors scrambled to get their money back.
The near collapse of the industry is one of the most dramatic stories of the global economic meltdown. It’s also among the most instructive— because hedge funds are still alive and, if managed wisely, will emerge stronger than ever in the coming years.
In Hedge Funds Humbled, industry insider Trevor Ganshaw pres a detailed primer of the industry and explains how the people who earned more than $100 billion in fees during their short but happy heyday planted the seeds of their own destruction. He paints a vivid picture of how the industry leaders’ major mistakes destroyed hundreds of billions of investor capital; Ganshaw calls them the “seven deadly sins” of the hedge fund industry:
Out-of-control leverage
Inadequate risk management
Flawed fee structures
Overcrowded strategies
The Peter Principle of too much capital
Capital instability
Fraud, enabled by lax controls
Ganshaw examines the future of the industry and shows investors what to look for and what to avoid. There’s still money to be made in hedge funds and, in his estimation, the industry is poised for a comeback. “As all good hedge fund managers know, greed is good,” he writes. “Humility, it seems, may now be an essential part of keeping it that way."

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