Last month we blogged here about changes in the prospects for hedge funds. Following-up on that post, an excellent, general overview column by Scott Burns about hedge funds, their costs, and their average net returns is available here.
A prediction: the remarkable growth in the hedge fund business over the last two decades will prove to be a generation-long fad. There's ten more years or so to go. Most hedge funds will close. A very few will thrive by exploiting market anomalies. Some will evolve into other types of high-priced financial services firms.
After more high-profile closures -- resulting from lackluster returns or, worse, blow-ups -- institutional investors will become reluctant to allocate capital to hedge funds. And investment policy allocation percentages for hedge funds will be substantially smaller that what those percentages are in 2011.
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An interim update to the prediction above that some hedge funds will evolve into other types of high-priced financial service firms: "[a]nd so we're seeing more and more hedge funds announcing they're entering the mutual-fund business. While this may smack of desperation ... ." (Barron's, July 30, 2012)
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