The OFR issued a research paper, “Investor Concentration, Flows, and Cash Holdings: Evidence from Hedge Funds.” The working paper says, some hedge funds have a few large investors. Such a concentrated investor base can make a fund vulnerable to unexpected requests for large redemptions. The paper shows that U.S. hedge funds in part account for that risk by holding more cash and liquid assets. These holdings help funds accommodate large outflows, but also result in lower risk-adjusted returns.
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