Avoiding Hedge Fund Risk

Avoiding Hedge Fund Risk

WSJ: Tips for Hedge Fund Investors Looking to Avoid Fraud 

The hedge fund industry has taken a hit to its reputation in the wake of the Galleon trial and the Bernard Madoff ponzi scheme. The Wall Street Journal has provided a guide to avoiding risk. "How to Size Up the Risk of Fraud in Hedge Funds" gives some good tips for sniffing out seedy would-be managers.
The biggest hint that something was amiss with Bernie Madoff's strategy was that it never missed. "Be skeptical: Very few people are better than everybody else all of the time," says Chris Addy, chief executive of Castle Hall Alternatives, which appraises hedge funds for institutional investors.

So, if you're looking at a fund with exceptional performance, be sure to ask the manager to explain it. "If a manager cannot provide sensible answers to sensible questions or is evasive…move on," says Mr. Addy.

Janaya Moscony, a former Securities and Exchange Commission examiner, agrees. The fraudulent funds she encountered at the SEC shared a tendency to obfuscate, she says, adding that she would be wary of any fund that can't answer questions in "layman's terms."
The fund's watchdogs look suspect...Read More

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