Managed hedge funds adopt sophisticated but independently variable investment strategies and whilst the unique management style of each fund offers the investor choice, most if not all have one thing in common; the hedge-fund manager has his / her own money invested in the fund. Therein lies the devil.
It's too easy to concede that the manager's vested interest keeps him or her honest and in most cases that's true. Nevertheless, besides the management fee the ONLY reason the manager invites external investors to participate in his / her fund [usually unregulated] is to secure leverage for his / her own wealth. It's this performance-based leverage offered unwittingly by investors that creates immense personal wealth for the manager assuming the funds are managed effectively. Once the fund is 'established' it's become common practice for the manager to 'return' the external investors' money. Besides the tax-event generated on withdrawal, the timing of the withdrawal is never favourable....
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