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Who Benefits From Funds Of Hedge Funds? A Critique Of Alternative Organizational Structures In The Hedge Fund Industry (I)

  • Yang CAO

    ()

    (University at Buffalo, Buffalo, New York 14260, USA)

  • Joseph P. OGDEN

    ()

    (University at Buffalo, Buffalo, New York 14260, USA)

  • Cristian I. TIU

    ()

    (University at Buffalo, Buffalo, New York 14260, USA)

Registered author(s):

    This paper provides a critique of alternative organizational structures in the hedge fund industry. Our critique is facilitated by several stylized models describing alternative industry structures. The models include: (1) An insideonly hedge fund model; (2) A straddling hedge fund model; (3) A straddling “feeder” fund of funds (FOF) hedge fund model; (4) A stand-alone outside hedge fund; and (5) An outside “feeder” FOF hedge fund model. Our discussion of these models, which centers on benefits vs. fundamental problems related to illiquidity, information asymmetry, and conflicts of interest, leads to several hypotheses about the differential characteristics and return performance of both individual hedge funds and FOFs.

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    Article provided by Faculty of Management, Academy of Economic Studies, Bucharest, Romania in its journal Business Excellence and Management.

    Volume (Year): 1 (2011)
    Issue (Month): 1 (December)
    Pages: 19-36

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    Handle: RePEc:rom:bemann:v:1:y:2011:i:1:p:19-36
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    1. Aragon, George O., 2007. "Share restrictions and asset pricing: Evidence from the hedge fund industry," Journal of Financial Economics, Elsevier, vol. 83(1), pages 33-58, January.
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    15. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, 06.
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