Why Should We Care About Hedge Funds

Added: 2026-06-03

[00:00:00]Now, it's true that hedge [music] funds have a relatively small asset base. The estimates currently are that hedge funds manage [music] about $2 trillion, which is actually a small amount of capital when it comes to the financial sector. So, why should we care about [music] $2 trillion? In fact, after the LTCM debacle, one of my colleagues said, "What's the big deal?

[00:00:20][music] Rich people lose money. Who cares about that?" Well, the reason that we ought to care about hedge funds is because they have repercussions [music] far beyond the investors that they cater to. For one thing, hedge funds [music] play a really key role in the financial industry.

[00:00:34]They are the tip of the spear in taking advantage of any new investment opportunities that [music] are created.

[00:00:39]And at the same time, they're also the canary in the coal mine. They're the first to die [music] when any kind of dislocation hits. We'll see some examples of that in a few minutes.

[00:00:48]In addition, hedge [music] funds, because they're unregulated, they engage in tremendous innovation, [music] much more quickly than in other parts of the financial industry. So, if you want to see what the future of the financial industry looks like, take a look at what hedge funds [music] are doing today. And in about three or five years, that's where mutual funds are going to go.

[00:01:07]Also, because [music] of leverage, this $2 trillion has way more impact than you might expect. And because of the [music] frequency and the size with which hedge funds trade, they have much more impact on any given day than other types of >> [music] >> investment vehicles. And finally, if you think about investors in hedge funds, it's actually not just rich people that invest in them. Nowadays, [music] there are many institutional investors that invest in hedge funds. In fact, I suspect that Oxford University's endowment is pretty significantly invested in hedge funds. And that means that a number of your contributions, [music] as well as your 401k and your retirement assets, are also partly invested in hedge funds. So, frankly, everybody should care about what's going on in the hedge fund industry, because what can happen in that industry >> [music] >> can have broader repercussions throughout the financial system.