This Buttonwood column from the Economist.com looks all the more relevant in light of additional hedge fund scandals this week. While there may be good arguments for limited transparency in regards to hedge funds the bad apples in this group make the argument untenable in light of (nearly) weekly scandals.
In light of what seems to be diminishing interest in hedge funds and middling performance one area in which hedge funds can distinguish themselves is in the area of transparency. In light of SEC registration requirements and investor demands they may have little choice in the matter.
As investors and supervisors are beginning to ask tougher questions, a little more transparency is about to hit this famously murky corner of the financial world. Just as mutual funds, the investment growth story of the 1980s, were eventually forced to divulge more information, hedge funds will be too. The old argument for exempting them from disclosure—that they dealt only with knowledgeable investors—holds less and less true, as more middle-income investors buy their way in through funds of funds and the like, and ordinary workers’ pension funds commit their future well being to hedge funds. Nor is what most hedge-fund managers do beyond the wit of man to comprehend: equity long/short strategies are the biggest investment style these days.