Hedge funds are key players in the world’s financial markets but no one knows exactly what they’re up to. Critics and supporters tend to share an assumption however that hedge funds are run by talented people who merit their hefty management fees. But new research by Wharton statistics professor Dean P. Foster and Brookings Institution senior fellow H. Peyton Young questions that idea arguing that it’s easy for hedge funds to fool their investors into believing the managers are better than they really are. The industry ”risks being inundated by managers who are gaming the system ... which could ultimately lead to a collapse in investor confidence ” they say.
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