Is Greed Still Good? What Have Hedge
Fund Managers and Investors Learned
from the 2008 Crisis?

Abstract

Have investors and hedge fund managers learned anything from their recent mistakes? One can doubt it. While each financial crisis has its unique features, common traits and warning signals surface repeatedly. In this article, the authors have chosen to discuss six of them, namely (a) the belief that the current situation bears little similarity to past disasters; (b) the misalignment of interests between principals and agents; (c) the mismatch of liquidity between assets and liabilities; (d) the increased use of leverage when returns are disappointing; (e) the increased complexity of the strategies and instruments traded; and (f) the lack of reliability of external due diligence providers. They conclude that, unfortunately, many of these signs seem to be back again in the world of hedge funds.