The Hedge Fund Report: Getting What You Pay For

Steinhardt notes that the profession is the highest-paid in the world. "Yet, you don't need a license, a degree or even experience to start a hedge fund." If Steinhardt, a legend who belongs to the generation of George Soros, Warren Buffet and Julian Robertson, concludes that "today, performance is hardly spectacular," there might be cause for concern.

Institutionalized

"Three guys in a garage" were the hedge funds of the past. Today, banks and other giant firms run the game. And as a result, performance is less impressive and risk is more limited. That was another (arguably) pessimistic view expressed last week by Emil Henry, the Treasury Department's assistant secretary for financial institutions.

His speech was meant to reassure investors. But, in reality, the message was that hedge funds have lost their edge by becoming mainstream.

"There is less systemic risk in the hedge fund space than is generally perceived," Henry said. To him, the shock created by the blowup of LTCM served as a catalyst for the institutionalization of the industry.

Following LTCM's implosion, counterparties have grown more disciplined about the extension of leverage; investors have demanded and obtained more transparency; and risks are now better monitored. In other words, hedge funds may not be so hot.

New Frontiers

Lazard Asset Management rolled out early this month a long/short equity hedge fund. Overall, the firm has a $4 billion alternative investment division comprising hedge funds, private equity and real estate assets. Kun Deng, a managing director at Lazard Asset Management, will run the new fund, which is called Lazard World Alternative Value Fund.

The World Trust Fund Deng managed for Lazard returned 28.7% last year. Lazard declined to comment on its new fund.