ABSTRACT
We will fi rst examine the role that hedge funds played in the recent fi nancial debacle. Th e media and many fi nancial experts have attempted to place a disproportionate share of the blame on hedge funds. Needless to say, recent scandals such as the one involving Bernard Madoff have clearly not done much to aid their reputation. Th ese supposedly unregulated investment vehicles present an easy target as they are considerably less transparent than more traditional funds, and undertake much more sophisticated and complex investment strategies. Th ese “bad boys” of modern fi nance also provide an ideal scapegoat for other fi nancial intermediaries who seek to defl ect the blame for their role in the present debacle. In order to provide a clearer evaluation of their responsibility, we will fi rst look at the exceptional growth of the hedge fund industry, highlighting the important role that fi nancial institutions played in the hedge fund
boom of the last 5 years. We will demonstrate the importance of hedge funds both as a source of returns as well as an unparalleled source of fees for the large brokerage fi rms. Th e proliferation of hedge funds was clearly a value proposition for these fi nancial intermediaries.
