Should investors expect more from hedge funds?

Do hedge funds really make investors big enough returns to justify their fees? It depends on the manager, but investors should be wary of high-risk equity funds dressed up as hedge funds.

It is no secret that we invest in hedge funds. At the same time it should be apparent to both readers of the Absolute Return Letter and clients of Absolute Return Partners that we are indeed among the most critical of the hedge fund industry. The point we make consistently is that investors should stay away from highly directional and leveraged equity funds dressed up as hedge funds.

In the July issue of this letter we wrote about the reasons why we find it difficult to get excited about emerging market hedge funds. We concluded that these types of hedge funds tend to outperform broad equity indices when markets are rising, and they underperform when markets are falling.

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