Comomon Fund

Chttp://www.scribd.com/doc/39358370/Fin-Common-Fund

Main Issue

The main issue facing David Storrs is whether or not the rewards of creating a new fund compiled with hedge funds outweighs the risks of forming the fund. The idea of hedge funds has become very popular and many investors are throwing massive amounts of capital into their funds. The hedge funds' strategies are seemingly becoming overcrowded thus leaving the managers to have to find other means of producing profits. The hedge fund managers have become extremely risk adverse because they have done so well in the short-term. This could cause them to take on too much volatility during a bad period and ruin their fund.

The hedge funds require capital to remain in the fund for a set period of time which makes it extremely difficult for the Common Fund to pull money out when the investment appears to be going downhill. Also, the hedge funds do not usually disclose any of their information which prevents the Common Fund managers from being able to see how much risk the hedge fund has taken on in the past.

Alternatives

1. The Common Fund could decide to not create the new fund of hedge funds. This would be a smart decision because the hedge funds contain far too much risk for colleges and universities to take on. The Common Fund also needs to have liquid investments and hedge funds do not meet this requirement. Hedge funds are taking huge amounts of risk currently just to make the same returns from previous years where they took less risk. When a big economic downturn occurs, the hedge funds will be too leveraged and will collapse.

2. The Common Fund could create the fund of hedge funds as an alternative investment for its clients. The Common Fund has always created alternative investments that seem risky but turn out to be extremely useful in diversifying their client's portfolios. Hedge funds are the new hot thing so the clients are going to want to be able to obtain some of its returns....