BdB report on Hedge Fonds: Playing in the Champions League

14 October 2005

Of all the entities operating in the international financial markets, hedge funds probably have the lowest public standing. They are often seen as crisis profiteers and ruthless speculators. At the same time, there is no denying that after years of rapid growth hedge funds have made it into the Champions League of the top financial market players.

In view of the rapid growth in the volume of assets under management, but particularly because of the growing influence of institutional investors, the hedge fund industry is likely to undergo something of a maturing process in the coming years. During this process, hedge funds could become more like 'normal' financial market players in terms of both the way they operate and the earnings they obtain. For one thing, if the inflow of capital continues to increase strongly, the expanding industry should have more difficulty in finding enough sufficiently profitable investment opportunities to generate the high returns of the past. For another, because of their own reporting requirements, institutional investors are calling for more detailed risk exposure information from hedge funds than private investors do.

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