New York Times – A truism of investing is that to beat the market consistently, an investor must either take above-average risk or trade on inside information. That inevitably casts a cloud overhedge funds, which exist to beat the market. Many fail, sometimes spectacularly so. But many succeed. The question is, How?
The Wall Street Journal reported that Eliot Spitzer was asking just that question. Shortly before he resigned as New York’s attorney general to become the governor, Mr. Spitzer opened investigations into whether employees at companies including Best Buy and Circuit City had improperly given nonpublic information to hedge fund managers.
Two research firms, the Gerson Lehrman Group and Vista Research, a unit of McGraw Hill, are also under investigation. They specialize in matching up people who have information  say, middle managers  with clients who crave information, like hedge funds managers. The firms collect fees from hedge fund clients and pay sources as consultants. Business for these firms has boomed since 2000, when federal regulators enacted disclosure rules that made executives at public companies wary of speaking privately with big investors.
