Investor confidence in hedge funds appears to be making a comeback. Just over $1 billion of net investments moved to hedge funds in the third quarter of 2009, the first quarter of inflows since mid 2008, according to Hedge Fund Research.
Despite the rebound, the events of 2008 and 2009- market turmoil, fraud and the widespread use of gates or suspension of redemption-left a lasting mark on the industry structure. Investors and prospective investors, such as pension funds, sovereign wealth funds and other large institutions, are demanding higher levels of transparency and control, greater liquidity and more flexible fee schedules. They are requiring rigorous due diligence, risk management and financial controls, and are demanding independence and separation of functions related to valuation, pricing, compliance and custody.