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Hedge Fund Managers Fear Institutional Investor Checklist

One theme reported in the media is the growing fear among hedge fund managers that the entrepreneurial spirit that has encouraged the massive growth of the hedge fund industry is being stifled. Reportedly, hedge funds are worried that with the wealth management scandal of Bernard Madoff and other high-profile frauds, investors will make stricter demands of hedge fund managers and harm the industry as a result.
Although the mood was overall better than last year's Monaco summit, several managers seem distressed by the demands made especially by institutional investors and the checklist of various requirements for a hedge fund before they will invest in it.

Managers left the GAIM conference, the annual get-together for the European industry, in more upbeat mood than last June after a year of client inflows, but they warned rigid demands by institutional investors threatened hedge funds' reputation as maverick investors.

"Institutions now are looking more for risk managers than investors, and that's a bad trend," said Oscar Schafer, managing partner of O S S Capital Management.

Executives said many big institutions, which helped hedge funds recover from the crisis of 2008, are now focusing their attentions on a checklist of attributes a hedge fund must have, such as a chief risk officer, a certain level of disclosure or a demonstrable investment process.

Not only can such demands distract managers from the task of managing money, but they may still not pinpoint the real risks and may mean that genuinely talented managers get starved of capital, managers warned. Source

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