Hedge funds will thrive

There was a lot of thunder about hedge funds this year. But in the end, there does not appear to be serious damage to the industry. Sure, there have been some blow-ups, considering the Bear Stearns funds have essentially went belly-up. Goldman Sachs' GEO and Global Alpha must also be mentioned. Amaranth should not be forgotten. Some entire asset classes seem a bit tainted, notably quant funds. But the bottom line is that institutions are not scaling back. In fact, many funds will likely boost their allocations to hedge funds. They are desperate for alpha and as long as they are diversified the risk is worth it. The industry will thrive in 2008. Collectively, returns may not be all that great. But fund picking is a game that institutions are willing to play. A big-return year would be nice, but I don't see it.

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