What is fair? In the wake of the credit crisis, the meltdown of investment strategies of all stripes and the resulting steep losses, this apparently simple question is provoking heated reactions. Nowhere is the question of fairness more vexed than in the rarefied world of hedge funds, where limited partnership agreements that have long been stacked in favour of the fund manager are overdue for a rethink.
Not long ago, even sophisticated investors were clamouring to pay a premium for access to opaque and illiquid funds despite the wide latitude typically provided for managers to lock up capital and limit withdrawals or suspend redemptions, all the while collecting their fees.
But many hedge funds have failed to deliver on their promise of absolute returns. And nothing focuses the mind like an inability to withdraw capital when collapsing asset values and steep losses have triggered a liquidity crunch.