What's Ahead for Hedge Funds?

Considering all the blows that hedge funds have endured in recent years—from the insider-trading scandal at SAC Capital to stock-focused funds charging astronomical fees only to miss an historic rally in stocks—a simple white paper might not have seemed like a big deal. Yet Hedge Funds: Problems Under the Hood, a 14-page presentation written by industry lawyer Gerald Kerner for an investment conference in January 2014, kicked off another bad year for the most beleaguered asset class on Wall Street.

Kerner, a longtime lawyer for billionaire money manager Stanley Druckenmiller, argued that it was time for investors to read the fine print of their contracts and demand better treatment. Hedge funds often reserve the right to lock up clients’ assets for long periods, for any reason; they also pass on legal costs that should be the responsibility of management and make it easy to amend their own rules with little input. “When these documents are drafted,” Kerner wrote, “there is no one at the table watching out for you.”