The Hedge Fund Report: Registration Battle Lines

But pain for some means business for others. Meyer's group has launched Hedge Fund Protector, a new insurance policy designed to protect hedge fund managers from lawsuits. Meyer said his firm did some research and found that fewer than 30% of hedge funds are protected from professional liability. The policy will cover partners and officers in firms for claims arising from allegation of errors and omissions, costs from regulatory investigations, and liabilities for newly formed funds.

After Bayou, hedge fund managers are ready to do whatever it takes to restore their credibility. That is why Corporate Resolutions, a New York-based background check and investigative firm, has rolled out a new spying weapon called Ethics Hotline. Employees at a hedge fund can anonymously report human resource issues, sexual harassment or accounting red flags before the problem becomes public. Big Brother is watching.

Hedge funds are moving into private equity; private equity managers are moving into hedge funds; and consultants are replicating the role of funds of funds. That in a nutshell is the conclusion of a study by Benjamin Poor, an analyst at advisory firm Cerulli & Associates. Hedge funds emulate private equity because they need higher returns and new ideas outside of the realm of publicly listed companies. Private equity shops are turning to hedge funds as a way to retain their top analysts, says Poor. So much talent is moving to the hedge world that private equity firms, like banks before them, are creating hedge fund operations just to keep their best and brightest in house.

The Blackstone Group is considering launching its second hedge fund sometimes next year. What's amazing is that the alternative investment powerhouse known for its private equity and fund of funds franchises, to this day runs only one hedge fund .When Blackstone was founded in 1985, it was a small family office that managed partners' money only. Classic scenario: The firm grew and opened its door to investors later on. It now runs a $10 billion fund of funds, has raised $26 billion in private equity and $8 billion in real estate.

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