Surprising success, new risks

Are HEDGE funds liable to become the next operational risk and compliance crisis? This is the question that regulators, investors and other market participants around the world are asking themselves in the wake of yet another prominent hedge fund implosion, challenges to regulatory frameworks in the US and worries about the risks hedge funds may be creating in certain markets.

The explosion in the popularity of hedge funds as alternative investment vehicles in the past decade has caught both the regulators and the financial services industry by surprise. According to a study by the Hennessee Group, between 1993 and 2003 hedge fund assets under management grew from $50 billion to $592 billion. It is calculated that today total assets under management stand at $1.2 trillion, an incredible 3,000% increase in the past 16 years.

The biggest catalyst for this growth has