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Ten days into the second half of 2018, what are the prospects for a banner year in the hedge fund industry? After all, unemployment is at record lows, optimism for the manufacturing sector is at an all time high, and market volatility has increased, which traditionally provides an edge to hedge funds, yet HFR reports that hedge fund gains for June, 2018 are at -0.46 percent.

Of course, these things, though factual, do not comprehend the broader picture. For example, tariffs and a possible trade war, Theresa May’s bumbling efforts regarding Brexit’s implementation, Russian overtures by Turkey’s President Erdoğan, ongoing talks with North Korea’s Chairman Kim, and the potential of domestic political upheaval foreshadowed by the appointment of a new Supreme Court Justice, mid-term elections and contentious border policies, to name a few. Oh, and let’s not forget the upcoming summit with President Putin of Russia.

What Does This Have to Do with Hedge Funds?

A great deal, actually. Every investment is subject to ancillary events that have the potential to affect the investment’s value. For example, a particularly brutal hurricane season will necessarily exert a negative impact on the value of insurance company stock, which can then impact the performance of hedge funds that have taken positions in insurance company stock.

The point being, investment is inherently risky business. Many liken it to gambling and to a great extent, it is. In fact, it may be riskier than gambling because the odds of success are not as easily calculated as are the odds of drawing a straight flush in a poker game.

Investing has many more variables than does a friendly game of five card stud. This is why the hedge fund industry offers so many opportunities for job seekers from a variety of disciplines.

Hedge fund managers, portfolio managers, chief investment officers and others within the fund that carry any measure of responsibility for investment decisions, benefit from having wide-ranging knowledge, not only of the prospective investment opportunity, but also the ancillary forces that may affect said investment.

What About Hedge Fund Jobs?

Intelligent capital allocators, like those charged with managing pension funds and university endowments, turn to hedge fund managers to increase the value of their holdings, as do high net worth individuals. These are not stupid people, yet, almost daily, one encounters harsh criticisms of the hedge fund industry…in the press, in the media and from our political elites.

The fact is, hedge funds contribute equally, if not more, to people’s well-being than bankers, lawyers, doctors, accountants, and politicians. Those who love investing are driven and intellectually curious. It is this intellectual curiosity that fosters the broad knowledge base essential to successful investment strategies. Hedge funds operate as a meritocracy. Only the best survive.

The takeaway is that regardless of your educational background, if you love investing, there are opportunities in the hedge fund industry despite one’s educational background. One’s love for investing, in concert with an intellectual curiosity that gives one a broad overview of world events and their potential impact on a particular investment, is a sufficient basis for pursuing a career in the hedge fund industry.

A banner year in the hedge fund industry is dependent on bringing these types of individuals into the industry.

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Hedge Funds, long the whipping boy for the financial ills of the country, are witnessing one of their own grow a spine. Last Wednesday, Davidson Kempner Capital Management LP, politely informed Kentucky Retirement Systems (KRS) to withdraw the $68 million it has invested with the firm.

Why?

According to the statement given to the Lexington Herald Leader by KRS executive director David Eager, the dust-up between Davidson Kempner Capital Management LP and the KRS revolves around two issues. The first, recent state legislation, specifically Senate Bill 2.

However, this Bill was signed into law March 10, 2017 and, although Senate Bill 2 undoubtedly has provisions unfavorable to Davidson Kempner Capital Management LP and the hedge fund industry as a whole, it is not credible that a law, which has been in force for 15 months, would suddenly become an impediment to Davidson Kempner Capital Management LP’s continued relationship with KRS. Eager’s suggestion that Senate Bill 2 is a reason for Davidson Kempner Capital Management LP’s decision impugns the competency of its Compliance Officer and legal counsel.

The second, and more believable reason, that KRS and Davidson Kempner Capital Management LP parted ways, is recent litigation that was filed against several other hedge fund firms in which KRS had invested around $1.5 billion.

But We’ve Seen this Before

While it is true that the hedge fund industry is no stranger to litigation, the lawsuit recently filed is a horse of a different color. This legal action was brought by 8 private citizens on behalf of the KRS. Counsel for the defendants in the case argue that these private citizens have no standing on which to file such a lawsuit.

It is far more likely that Davidson Kempner Capital Management LP’s decision was based upon the concern that the Kentucky courts will apparently allow lawsuits against hedge funds regardless of how tangentially said plaintiffs may be associated with KRS.

This is clearly an understandable concern for any hedge fund considering a relationship with KRS which manages one of the most underfunded public pension systems in the United States. Funding ratios for its 5 funds are reported to range from a low of 14 percent to a high of 54 percent. This is clearly dangerous territory for any investment firm because the state will never acknowledge the unfortunate situation to be its fault. Rarely is there a mea culpa from a government entity.

What about Hedge Fund Jobs?

This Kentucky tale highlights the importance of the legal profession in the hedge fund industry. It also demonstrates the very serious nature of a Compliance Officer’s duties and responsibilities in a hedge fund. Job opportunities for great legal minds will always be present in the hedge fund industry. With hedge fund starts outpacing hedge fund closures through 2018’s first quarter, demand continues to grow.

HFR reports that the industry saw 158 new funds launched through the first quarter, with 145 liquidating, a net gain of thirteen funds through the quarter. As a result, opportunities for employment in the industry remain robust.

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Hedge Funds Shine, Though Not As Brightly As Predicted

June 11, 2018

Hedge funds remain in positive-gain territory through May, as reported by HFR. Aggregate net gains for the year are unimpressive, standing at 0.39 percent, just one basis point above April’s 0.38 percent gain. This fact highlights the quagmire the hedge fund industry is locked into at this point in time. Changes Are Afoot Market volatility […]

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Investors Look to the Stars

May 28, 2018

Billions of investment dollars are pouring into the hedge fund industry and, unsurprisingly, investors are supporting well-known industry figures that are striking out on their own. Stephen Cohen, for example, recently opened his family office to outside investment and raked in more than $3 billion. According to a recent article in the Financial Times, the […]

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Hedge Funds Rise to the Challenge

May 14, 2018

Although a small number of investors view hedge funds as too great a risk of pension fund investment, the majority understands that hedge funds are the only option for reducing risk while at the same time providing uncorrelated returns. For example, Raphael Arndt, the Chief Investment Officer (CIO) of an Australian sovereign wealth fund has […]

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First Quarter Results Mean an Uphill Battle for Hedge Funds

April 30, 2018

Hedge funds were dealt a harsh hand in the first quarter of 2018, down 0.13 percent. However, to put things in perspective, the Dow was down 2.49 percent in its first quarter, ending at 24,719 the closing number for 2017, and falling more than 600 points to 24,103 on March 29, 2018, the last trading […]

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Why You Need to Make Quantamental and Ownit Part of Your Vocabulary

April 16, 2018

Fundamental hedge fund managers are, in growing numbers, being won-over to the concepts of artificial intelligence, machine learning and big data. How much of this is genuine interest as opposed to the fear of missing out is unclear. What Is Clear Data science, artificial intelligence, and machine learning have attracted significant attention in recent years, […]

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