1. Kellogg School of Management Hedge Fund Conference Panel Discussion: Evolution of Hedge Fund Industry, Risk and Return Moderator David A Hsieh Duke University

2. (c) David A. Hsieh 20062 Growth in Demand for Hedge Funds FY2001FY2005 University Endowments: Amount invested$14.4b $49.6b % of assets 6.1% 16.1% Top 200 DB Plans: Amount invested$ 3.2b$29.9b % of assets 0.1% 0.8% Source: NACUBO, Pension & Investments.

3. (c) David A. Hsieh 20063 Growth in Supply of Hedge Funds  Estimated Number of Hedge Funds and Assets Under Management (excl FOF) 20012005 Number:3,9046,667 AUM: $539b$1,105b Source: HFR.

4. (c) David A. Hsieh 20064 Declining Trend in Hedge Fund Returns? (4-Year Moving Averages)

5. (c) David A. Hsieh 20065 Declining “Alpha”? Estimated Monthly Alpha based on a 7-factor model: 1994/2-1998/10-2000/4- Index1998/92000/32004/12 HFRI0.00280.01320.0012 FOF0.00090.00930.0006 Have-Alpha0.00470.01600.0018 Beta-Only -.00170.0066 -.0002 Source: Fung, Hsieh, Naik, Ramadorai (2006).

6. (c) David A. Hsieh 20066 Questions for Panelists  Demand: what is causing endowments and pensions to invest in hedge funds? Will it continue?  Supply: are styles and strategies changing over time? What are potential new styles?  Risk: are risks in hedge funds (type & amount) changing over time?  Return: will net-of-fee returns, and “alphas”, continue to decline?