Yeah it does seem that everyone and their mom runs a
HF nowadays. But there will always be the BIG players (SAC, Renaissance, Citadel, etc) with billions and huge money and the smaller ones with a few million. In HedgeHogging Biggs thought having raised "only" 600MM or so was tiny compared to his institutional buddies.
Anyway the great concern is that with little regulation in place for these HF's the SEC gets nervous b/c the amount of aggregate money that they run is mind boggling, especially because many are unregistered or unknown. Their sheer size makes them a market force on their own.
An example of an abuse of this power is their
correspondence with
independent analysts b/c of
possible insider-type
trading or market manipulation.
Not to mention the HF
scams or
Ponzi-scheme type deals such as those we've seen
recently
That's one of the reasons, IMO, that one needs to be an '
Accredited Investor' so normal people won't lose their hard-earned life savings. This requirement itself can be debatable, however, as these nonaccredited investors could arguably face even more risk trying to play the market by themselves with no understanding of what they're getting
into...
The nice thing about HF's are that they are pretty much self-regulating on a
survivorship bias as the ones that do their job and achieve good returns retain their investors and attract new ones, thus becoming larger, and the ones that don't face withdrawals and
shutdowns.
Yet with the increasing amount of craziness such as
Funds of Funds and Funds of Funds of Funds, some think that this HF mania may just be nothing more than
hype.
Where will it all end? Hard to say b/c the big players are very influential... kind of reminds me of
Wall Street.
All in the search for Alpha.
