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learned that lowering the risk of a portfolio is as important as increasing
the return on the portfolio. Risk-averse investors flocked to a new breed
of hedge fund marketed as either low-risk or low-risk relative to the re-
turn achieved.
Today, investors measure risk in many ways. These investors reward
managers than control risk and pressure managers to control risk. Most of
the growth in hedge fund assets has been in strategies have had fairly high
returns yet have managed to keep risk exposure to modest levels.
Trading counterparties and regulators have also pressured hedge funds
to assume lower risks in their portfolios. Leverage is lower. Managers may
be more inclined to look for hedges that can reduce risks without signifi-
cantly lowering the return to investors.
Growth of the International Hedge Fund Market
Hedge funds have been early to extend trading to securities in foreign mar-
kets. Hedge funds have also received investments from international pri-
vate banks in Switzerland and other locations.
There is an internationalism that is evolving in hedge funds that goes
beyond the types of assets in the portfolio. Hedge funds are being cre-
ated all over the world. Most countries are evolving a regulatory struc-
ture to monitor and sometimes control hedge fund activities of their
citizens. Investors from many countries are investing in both established
and new hedge funds. In addition, there are many more places that have
the legal infrastructure and taxation that can act as domiciles for world-
wide hedge funds.
FUTURE CONSIDERATIONS
The hedge fund industry has developed rapidly. Recent trends indicate that
the industry is still evolving.
Future Growth in Assets under Management
Growth in assets in any investment product reflects the wealth accumu-
lated by investors both from reinvested returns and from net new savings.
Hedge fund growth has derived from both compounded returns and new
savings, which has made the pie larger. In addition, the hedge fund indus-
try has been accumulating a larger portion of the investment pie.
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