Hedge Fund Reader : Are Hedge Funds safe?

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August 07, 2005

Are Hedge Funds safe? – The debate continues

The sheer size of hedge funds today (over $1 trillion) has raised concerns over how safe they really are. The debate over the impact of hedge funds and their strategies on the lives of commoners and millionaires continues. While some advocate that the fuss over hedge fund’s likely collapse like that of Long Term Capital Management in 1998 is quite unnecessary. For one, they say, the funds are using much less leverage now than they were using 10 years back. Even the risk propensity of large and medium sized investors has reduced, who now do not expect returns like 40% of 1990s. Yes, the General Motor and Fords episode earlier this year did shake the industry a little and some large funds did loose money but the point to be noted here is – The market did not collapse. However some feel, that the exposures are not over yet. There might be others waiting in the pipeline which are not visible yet. Money.cnn.com reports:

“But it never came...a sign say some that the risks in hedge funds is overblown; it's only those investing in the hedge funds themselves (usually high net worth investors) that need to worry.”