How Do Hedge Funds Get Away With It? Eight Theories

Posted by John Cassidy

The other day, I asked how hedge funds manage to bestow such great riches on their managers despite the fact that, in many cases, their performance seems pretty ordinary. That got quite a reaction. The responses ranged from claims that hedgies are remunerated perfectly appropriately to charges that they are outright crooks who prey on gullible and greedy investors. Because the industry has grown enormously in recent years—according to one industry source, hedge funds now manage about $2.1 trillion of capital, a good deal of which comes from pension funds and charitable endowments—it’s not a trivial matter which of these explanations is the most accurate.