By Dimitris N. Chorafas (auth.)
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To press this issue of exposure, and link it to a likely return, I will examine the infrastructure supporting the new ‘wonder deals’ before looking at the factors propelling alternative investments. The impact of hedge funds on financial markets The end-investor may be offered an alternative investment by the bank where he has his deposits, by a broker, or by a SAIV. No matter who is the selling party, the way to bet is that behind this offer stand one or more hedge funds trying to increase their returns in an uncertain and volatile financial environment.
33 respect to year-to-year profitability of their assets. Banks and hedge funds selling alternative investments commonly claim that: The target market audience includes investors who want to obtain above average risk-adjusted returns. This is a misstatement. What the investors are offered are not riskadjusted returns, but a situation where ‘risk is king’, paving the way to the total loss of the capital invested. This misstatement is often accompanied by the following declaration: Alternative investments include selling borrowed assets, because shorting can outperform in both bull and bear markets.
I disagree. Quite to the contrary, it is objective. Biased is the negation of a statement based on thirty-five years of experience in banking, as well as on the opinion of many cognisant investors and traders. ‘You say there is a role for hedge funds in a modern economy, but never stipulate what this is and what the benefits are,’ said another reviewer. Unlike the avalanche of remarks made in Chapter 1, which are baseless, this one has a point. On the whole, I am not an enthusiast of hedge 34 Alternative Investments and the Mismanagement of Risk funds, because of the risks embedded in them that have not yet been tested as is the case with the banking industry.
Alternative Investments and the Mismanagement of Risk by Dimitris N. Chorafas (auth.)