HEDGEfundamentals

When hedge funds were first created about 65 years ago, the goal was to provide investors new tools to help protect their assets in turbulent markets and better create balanced, diversified investment portfolios.

The investor makeup of the hedge fund industry has evolved in recent years. In the 1980s, institutions of higher learning began partnering with funds as a way to help fund scholarships, cutting-edge research and infrastructure upgrades. This institutional partnership expanded in the 1990s and early-2000s to include public and private pension funds. Now, philanthropic foundations also partner with hedge funds to help achieve their missions.

Today, nearly two-thirds of all hedge fund assets under management come from these institutional investors.

Who Is MFA?

What Is A Hedge Fund?

How Are Hedge Funds Regulated?

Who Benefits?

How Transparent Are Hedge Funds?

Who Is MFA?

For the last 25 years, Managed Funds Association has served as the leading voice of the alternative investment industry by advocating for sound industry practices and public policies that foster fair, efficient and transparent capital markets. Today, about two-thirds of the industry’s $3 trillion in global assets under management come from institutional investors in cities and states across the country. Members of MFA are proud of the work we do to help these institutional investors – like pension funds, foundations and endowments – meet their fiduciary responsibilities by providing secure retirement for pension beneficiaries, research dollars for hospitals and scholarships for deserving students.

What Is A Hedge Fund?

Hedge funds were first created about 65 years ago as a tool to help investors create diversified investment portfolios and provide returns that are uncorrelated to the equity market. Institutional investors across the country now rely on hedge funds to help manage risk in their portfolios, among other objectives.

While the industry has grown in recent years, hedge funds are relatively small actors compared to most of the financial services sector. During the peak of the global financial crisis, many hedge funds were forced to liquidate their assets, and yet none required a taxpayer-funded TARP bailout. That is in part because the global hedge fund industry is less concentrated and less leveraged than many other types of financial institutions.

How Are Hedge Funds Regulated?

A lot has changed since MFA was first founded 25 years ago, but the mandate from our Members has remained the same – be a constructive advocate for fair, efficient and liquid capital markets, and serve as a policy steward for our industry, its professionals and the investors they serve. This is why MFA has embraced many financial market reforms contained in the Dodd-Frank Act.

Today, the industry is part of the globally-regulated financial mainstream and is more transparent than it has ever been. Fund managers and their activities are monitored by the SEC and CFTC in the U.S. and well-regulated by several EU regulatory laws and individual Member State authorities. Firms across the industry have also vastly improved their ability to manage risks for their firms and on behalf of their investors.

Who Benefits?

The hedge fund industry has changed a lot in the 25 years since MFA was founded. As the industry has grown, it has become globally-regulated – and it is now more transparent than ever. But those have not been the only changes. Hedge funds started as tools for high net worth individuals. Now, two-thirds of the industry’s capital comes from institutions like public and private pension funds, charitable endowments, philanthropic foundations and universities. Fund managers help these organizations fulfill their fiduciary obligations and meet financial goals like providing secure retirements to American workers.

How Transparent Are Hedge Funds?

As regulated participants in the capital markets, MFA members are more transparent that ever before. Through regular filings like Forms PF and ADV, hedge fund managers now provide regulators with substantial and fundamental information about their funds’ holdings, size, leverage, liquidity, activities and other sensitive, proprietary information. This detailed information helps regulators like the SEC and CFTC fulfill their important mission of protecting investors and the integrity of our markets.