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Hedge fund loss?

Hedge fund loss? "Poorly performing managers still have reason to smile, though, since they typically take a big chunk of fund profits." A typical illogical sentence from the usual negative article on hedge funds sponsored by the long only lobby. If a manager performs poorly, what "big chunk" of PROFITS are they talking about? There won't be any profits. The much criticized performance fee incentivizes the best managers to run the highest quality investment products while investors keep by far the biggest "chunk" of any profits. Profits that depend entirely on the ability of the manager.

The massive volatility and drawdowns of long only equity funds make them unsuitable for conservative investors, rich or poor. Accredited investors, also known as high net worth wealthy people, live in better houses, drive better cars and take better vacations than non-rich people. They invest in hedge funds because they are BETTER products offering capital preservation with reliable growth. With rich people, by far their deepest fear is becoming non-rich. Rich people took risks to get rich; they do not want take risks to remain rich.

Apparently hedge funds "invest aggressively in options and futures, short stocks, buy on margin (use borrowed money) and make currency bets" but mutual funds do not. Hedge funds invest in these areas because it is their job to, either using the instruments to hedge or because the manager has a knowledge edge in that field. Mutual funds don't do this because they make little attempt to reduce risk. Mutual funds make huge currency bets if they are denominated in US$ and invest overseas.

Also, for a supposed "explanation" of hedge funds, the pundits should check the facts on volatility. Proper hedge funds, with rare exception, are less volatile than long only funds. Peruse any hedge fund performance database, ask any regular investor in hedge funds - bona fide, proper hedge funds are MUCH less risky than an index or long only fund.

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