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Business Makeover: Hedge Funds


If it's broke, fix it.

As major investment banks go the way of the dodo and fearful investors migrate capital to more secure strategies, the fate of many a hedge fund is suddenly shaky. These largely unregulated, sometimes high-risk ventures may no longer be the siren song of the financial services industry. With the landscape forever altered, what are some changes hedge funds can make to ensure the continuity of their insanely lucrative business?

Short selling has been temporarily banned, placing many hedge funds at risk. Funds should attempt to sell other things they don't yet own -- cars, homes, gold watches -- with the explicit promise that they will, someday, buy them back.

Believing a recession is looming, most investors have become more risk-averse and have shortened their investment time horizons. Heighten their thirst for risk by force-feeding them Mountain Dew and taking them cliff-diving.

Clients are sometimes afraid of shady offshore tax shelters, such as the Cayman Islands. Quell their fears by establishing tax havens in onshore locations, such as back alleys, deserted roads and dimly-lit hotel rooms.

Roughly 1 in 10 hedge funds are currently receiving performance fees for exceeding their high-water mark. To avoid disincentivizing analysts during this economic downturn, evaluate end-of-year bonuses based on effort rather than results.

Many are calling for greater transparency in the investment practices of hedge funds. Although full disclosure could jeopardize earnings, nobody's stopping fund managers from revealing their strategies while wearing a fake mustache, dark glasses and wig.

Just do whatever Dan Aykroyd and Eddie Murphy did at the end of Trading Places. That seemed to do the trick.

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