21st April 2011
Ever since generating losses in 2008, the reputation of these ‘absolute return' vehicles has been damaged.
The Madoff scandal which topped off the year did not help. Nevertheless, whilst clarity in the markets remains illusive and with a wider range of tools to exploit opportunities, are they a form of investment to be feared or favoured?
A tainted asset class
Disappointed and disillusioned, many investors are reluctant to revisit the asset class run by managers once hailed as the new "masters of the universe".
Sold on the promise of generating positive performance in any market environment or at the very least preserving capital in times of stress, losses generated in 2008 came as a shock.
With the Madoff scandal came the realization that even funds that did consistently generate steady returns were not immune to trouble.
There is even an aptly named "Hedge Fund Implode-o-Meter" website tracking the number of major funds which have "imploded" since late 2006 (out of interest the number at last look stands at 117, although this includes all funds suffering any form of "permanent adverse change", not just total shutdown).
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