An Alternative Future

Hedge funds are supposed to make money all the time, and when they fail at this, their investors redeem and go to someone else who has recently been making money. Every three or four years they deliver a one in a hundred-year flood. They are generally unregulated and generally do not tell us what they do. Yet inflows to hedge funds from institutions and others have been off the charts for the last few years. Despite some definite dark sides to the industry that need to be recognized and then ameliorated, hedge funds are central to the future of investment management. A combination of hedge funds and traditional index funds has distinct advantages over typical traditional active management.