Some investors have missed the emerging market run by continuously looking for a pullback due to fear of 'buying the top.' Some others have opted to invest in ETFs and mutual funds which have no shorting characteristic. These investors generally believe that if you wish to be involved in the so-called EM markets, a long position is preferable to a hedged position. In addition, the liquidity you get from the mutual funds is most often daily, and the ETFs nearly instantaneous, unlike hedge funds!

  So why invest in a hedge fund and pay higher fees if you can get beta from mutual funds and ETFs? After all, even though people profess to seek managers as alpha generators in this space, in truth, The Shadow believes most investors have truly ridden a beta wave. But what if the extremely positive environment for emerging markets hits more than a bump in the road? And what if recession across many worldwide economies actually becomes a reality rather than the ratings from a few heretic economists?
  In theory, hedge funds should have the ability to capture most of a markets underlying gains, but should also be able to retain a significant portion of those gains when reversals occur. The value of a hedge fund manager is his or her ability to not just increase risk at the appropriate time, but also reduce risk when necessary. This is the quality that magnifies the vital role that hedge fund managers play in the EM space, and gives them an advantage. "Trees don't grow to the sky" even though one could question that mantra given the past few years performance.
The situation is that the world's economic environment is most likely changing. One could argue that many EM equity prices have far outpaced economic developments in many countries.
Certainly, this can be evidenced by the 35% surge in India's Sensex Index in the last two months, and the 50% increase in Shanghai shares over the last six months. Cracks in the armor are already appearing, as market regulators in places such as India and China have proposed restrictive measures to help control the influx of foreign capital flows. Volatility is likely to rise in such times.
So wake up Mr. Investor. Find a professional manager and stock picker who can not only perform for you in good markets, but who also knows how to protect gains. Yes, less expensive methods work well in markets when trees try to grow to the sky. But pros are needed when volatilities rise and uncertainty reigns.

  Hedge funds posted their best month in years in September. The  Hedge Fund aggregate Average was +3.27% as most strategies benefited from the mid-month U.S. Federal Reserve attempting to ease extremely tight credit markets in September. Commodity related funds performed extremely well as the Fed actions spurred inflationary concerns, but excellent performance was not limited to commodity related strategies. Equity markets surged and strategies which typically maintain long biases were rewarded. Macro funds which often position themselves across multiple asset classes appear to have taken advantage of the strong moves seen in interest rate, currency and commodity markets. The global macro strategy was one of a handful of strategies tracked to outperform broad equity markets in the third quarter, returning +3.97% during the difficult three month span.
Right now the bleeding edge of the crisis in confidence involves worries that there may be large losses hidden inside so-called “structured investment vehicles” — basically hedge funds that borrow from the public and invest the proceeds in mortgage-backed securities. The new plan would create a “super-fund” ... which would seek to restore confidence by, um, borrowing from the public and investing the proceeds in mortgage-backed securities.
Hedge funds are raising money in the stock market, aiming to persuade investors that the industry is poised to profit from opportunities created by the credit squeeze. FRM Credit Alpha, run by Financial Risk Management, will announce plans to more than double its size by raising £80m from a new share issue, just six months after it floated. Others raising money include listed funds run by Thames River Capital, Dexion, Cazenove and New Star. They believe they can now get easier access to the hedge funds in which they invest.