[tomp]

I don't see why the sarcasm. Hedge funds are not banks; they live or die by the brains of the people they hire. If they perform well, they get more investors. If they fail to perform, they go bust, and noone is there to bail them out.

[kasey_junk]

As in most industries, I think you are undervaluing the importance of sales. It's true that long term performance dips will cause a fund to go bust, looking at the number of funds that don't outperform (or only marginally outperform) the market, year after year, makes it obvious that sales are an important part of the hedge fund industry.

[tomp]

Right, but it's not sales in the sense of "lets convince stupid people to waste money by giving it to us", it's more in the sense of "trust us, we're smart, have a good strategy and good past performance". Of course, the average hedge fund under-performs the market (for a particular measure of performance), but rich people might have other investment goals (the chance of finding alpha & beating the market, diversification, negative beta (anti-cyclic returns), ...). Same as with casinos/lottery, they need little sales, people know it in average underperforms just keeping the money, but you're not gambling for the average, you're gambling for the variance.

[intended]

Interesting point, but given that the average performance is ... average, most rich people would be better off investing in an inside edge on a deal. Which is what I suppose they do.

[busterarm]

They're definitely important but hedge funds depend on investor confidence. Ours made an untimely bad decision that not only resulted in significant losses but caused investors to flee.

Sales is tied to performance. Hedge funds' customers are even more conservative than they are.

[tormeh]

The sarcasm's there because the market clearly doesn't work as it should here, just as it doesn't work in many other industries. The free market works for commodities trading, but not much else.