Financial Risk Manager Part 2
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A portfolio analyst is studying the history of hedge funds. While reviewing the milestones that shaped the hedge fund industry, the analyst focuses on institutional investors replacing private individuals as the dominant hedge fund investor group in the early 2000s. The analyst examines the effects of this major development on the industry, including changes in investor expectations, assets under management (AUM), and the level and volatility of returns. Which of the following statements is correct regarding the emergence of institutional investors as the dominant investor group in the hedge fund industry?
A
Institutional investors have uniform expectations, which caused strategy benchmarking based on peer group alphas to become more effective.
B
Institutional investors allocated their investments evenly among small, medium, and large hedge funds, which decreased the concentration of AUM in the hedge fund industry.
C
Some hedge funds started to pursue more conservative strategies and hedge fund indices started to generate lower returns than the S&P 500 Index.
D
Some hedge funds changed their strategies, but the volatility of hedge fund index returns continued to be lower than that of the S&P 500 Index returns.