Navigating the Hedge Fund Maze – December 2009

News of the Galleon scandal, which first made headlines in October, continued to develop through December. As we became more familiar with Rajaratnam and Chiesi, the cast of characters grew--complicating an already heated case. And with scandal came predictions of greater regulation. The FBI is reportedly stepping up its investigation of hedge funds and new legislation may single-out hedge funds.

For the most part, December was spent assessing hedge funds' performance for the year, and making plans to assure growth in 2010. So what makes a hedge fund successful in today's marketplace? According to a Reuters' article it's a company's quantitative resources. One Goldman Sachs exec (GS) told the news organization, "What we're going to have to do to be successful is to be more dynamic and more opportunistic and focus especially on more proprietary forecasting signals...and exploit shorter-term opportunistic and event-driven types of phenomenon."

But even for hedge funds that aren't crazy about quants, the forecast for 2010 is likely sunny. The damage from 2008 was massive, but in 2009 things turned around and in December assets crossed the $2 trillion level for the first time in a year, reports Reuters. Hedge Fund Research says hedge funds returned nearly 19 percent, in 2009.

FierceFinance Editor Jim Kim wrote in December, "Limited partners are no longer afraid to ask questions. General partners, in general, feel the need to treat them better. Fees may be dipping a bit. Redemptions policies and the like are now much more favorable to the investor. The rise of third-party administrators also is boosting confidence." All in all, it sounds like 2009 brought some good changes to the hedge fund industry.