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We find evidence that hedge fund investors pool together measures of manager skill (alpha) with returns associated with traditional and exotic risk exposures (beta) when making capital allocation decisions. Institutional clienteles and those investing in high-fee funds appear more cognizant of exotic risks, and investors generally place greater relative emphasis on exotic risk returns over time. However, we find little evidence of persistence in performance from traditional or exotic risks, which suggests investors should adjust for these risks when evaluating fund performance rather than seeking them out following periods of success.JEL Classification: G11, G20

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Open-end mutual funds can use redemption in kind to satisfy investor redemptions by delivering securities instead of cash. We find that funds that reserve their rights to redeem in kind experience less redemption after poor performance. Evidence from actual in-kind transactions reveals several unique mechanisms for redemption in kind to mitigate fund runs, including the delivery of more illiquid stocks and stocks with greater tax overhang. Funds suffer less from the adverse impact of outflows on their performance. However, redeeming investors bear significant liquidation costs when they sell securities, costs associated with destabilization in the prices of these securities.