As we begin to emerge from the aftermath of the credit crunch and the financial services industry begins to assess what good, if any, has come out of the crisis, the buy-side and in particular, hedge funds, should be able to applaud some tangible positives. For one, the crisis has caused many hedge funds to address the issue of investor diversity. The speedy redemptions made by many high net worth investors in the wake of the Maddoff affair has led many funds to reassess the plausibility of relying too heavily on a small number of investors. As a result, many hedge funds are taking advantage of the Ucits III mutual fund directive, which enables them to launch regulated, onshore versions of their strategies, enabling them to broaden their investor base to include retail investors. A recent survey of 650 houses, conducted by HedgeFund Intelligence, found that a fifth of European hedge fund managers have launched, or are launching, a mainstream Ucits III mutual fund, while another third say they are considering doing so. This type of investor diversification marks a real sense of progress for the hedge funds as it provides the alternative investment industry with a much more mainstream appeal, while making it markedly less vulnerable to the whims of a concentrated group of investors.The crisis has also caused hedge funds to examine another oft-neglected Achilles heel: middle and back office operations. In a recent survey by Stonewall Consulting Group, 88% of survey respondents agreed that investors are spending more time and attention than ever before on due diligence and were nearly unanimous that the importance of operational due diligence has risen. While this may provide hedge funds with the headache of overhauling their post trade operations in the short term, those that do invest in the area of operations will stand to gain a serious competitive advantage over those that do not. The good news for the buy-side is that in response to this increased focus that investors have on operations, vendors are coming up with innovative ways of improving current processes. For example, following the collapse of Lehman Brothers, counterparty risk has developed into one of the top concerns for hedge funds. This in turn, has led to demand for a central counterparty which will provide protection for over-the-counter trades between the buy- and sell-side in Europe. The credit crunch has claimed many victims, but it has also caused the financial industry to sit up and address flaws in the existing system. A by-product of these improvements is proving to be an increase in competition and a reduction in risks and costs, all changes that should be applauded.