If there's any purpose in hedge funds as a structure it's that they provide liquidity for the market. So it's in everyone's best interest to let them do price discovery against each other.
It's not just liquidity. Price discovery helps everyone. The earlier the correct price is discovered, the less we're all screwed when the bubble pops. I think they're rewarded too well for the function they serve but whaddya gonna do.
I think on average they match a typical 60/40 portfolio on a risk adjusted basis. The goal is less to out perform long term and more to avoid big downturns (hence "hedge").
I do think there are some firms that have the skill to out-perform long term, but then the average is dragged down by ones like the subject of this article.
Using leverage has risks that you're supposed to understand before you do it.
It's not a free lunch, unless you're putting the sharks' interest ahead of yours. Or clueless, which was the case here, as L.A. is not a trader and has no business running a fund.
Too bad for the people that were overleveraged? I don’t see why, they assumed too much risk and lost. This isn’t a WSB guy blowing up, it’s a collection of capital from sophisticated investors that understand the risks.