Hedge Funds Skip Riskier Gambles

Returns are down as more cautious investors hold sway
By J. Kelman,  Newser User
Posted May 22, 2007 11:52 AM CDT

(Newser) – Are hedge funds going soft? The swashbuckling industry has long been known for its high-risk, high-rewards MO, but returns are down, on average trailing the S&P 500 last year. The reason, BusinessWeek suggests, may be that alternative investments are no longer so alternative. And other non-traditional investments, like private equity, are feeling the same push.

As conservative institutional investors supplant wealthy individuals, hedge-fund managers find themselves playing to more risk-averse clients, like pension funds. “They are managing the assets in order to keep the assets and not taking enough risk to create market-beating returns,” says AIG’s head of hedge fund strategy. "This is a natural evolution to a professionally managed asset class," says one analyst.