The brouhaha surrounding the huge fraud perpetrated by Bernie Madoff could hardly have come at a worse time for hedge funds.
Performance in general was deeply disappointing in 2008. Even if the industry did on average beat the returns in most asset classes, a significant majority of hedge funds were negative on the year. And with an increasing number imposing gate provisions or suspending redemptions, all too many managers have also got themselves into highly fractious relationships with their investors or their prime brokers, or both.
With a lot of investors already planning, for various reasons, to cut back allocations to hedge funds, this was really not the time to discover that one of the longest-running managers of money in the business was in fact operating nothing more than a Ponzi scheme.
Two key questions will dominate the debate about Madoff for the foreseeable...
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