| > Also, the hedge fund industry's goal is not necessarily to beat the market, it is to provide the highest level of return per unit of risk. This is every investment, not judge hedge funds. Every asset has a risk profile. Generally speaking, the higher the risk, the higher the return. US government T-bonds have a low return because they're viewed as essentially risk-free. Put another way: the US government has never defaulted on a debt and that debt is backed by the US government. It's not that a default can't happen but if it does, we probably have larger problems. So low-risk, relatively low return. Individual stocks on the other hand have much higher risk. So the return can be much greater but you can also lose all your money. Funds reduce risk by splitting investments across a pool of assets. This reduces risk but also reduces likely returns (both positive and negative). When people compare actively managed funds (including hedge funds) to passive funds (eg S&P 500 weighted fund), actively managed funds overall underperform passive funds for the same asset classes and risk profile. That means you compare an equity hedge fund to other equity funds. This also means whenever we talk about average returns we actually mean average returns for that risk profile and asset class. |