HEDGE FUNDS GROWING FAST, BUT DATA ON THEM SCARCE

Hedge funds are still a small part of the investment field in Canada, dwarfed by similar operations in Britain and the U.S., but they’re growing fast. The hedge fund industry in Canada is relatively new with only 17 per cent of hedge funds dating back more than a decade. But since 1999, more than 200 new singlestrategy hedge funds have emerged with holding more than $15 billion under management. For the most part, hedge funds are largely unregulated because they cater to sophisticated investors with deep pockets. A hedge fund manager can invest in anything – stocks, bonds, mutual funds, real estate, startups, art, rare stamps, collectibles, gold, wine, or anything else of value. Most hedge funds are structured as a limited partnership or limited liability company. If a single investor puts $100 million into a hedge fund and, by some savvy investment, that figure is doubled in the first year, the first $4 million goes back to the rich investor (this is known as the “hurdle rate,” because the investment manager must clear that jump before taking any profit). The other $96 million in profit is split 75-25 per cent between the investor and the hedge fund manager. That kind of big payday can breed skullduggery. In 2005, the Portus Alternative Asset Management scandal broke wide open when it became apparent that this hedge fund had not invested almost $53 million received from its customers, and over $17 million was unaccounted for. The Ontario Superior Court filed a lawsuit against the hedge fund manager and seized all of its assets. The court ruled the co-founder of the fund misappropriated funds using offshore accounts in Italy, the Cayman Islands and the Bahamas, before fleeing to Israel after the fund’s assets were seized.