Are hedge funds still the best play in town?
Although there are doubts about the construction of the metrics quoted on hedge funds, for instance because of what is called ‘survivorship bias’, which tends to measure only surviving hedge funds and ignores those that closed, and there are concerns that 2005 saw the end of the hedge funds’ glory days, the returns obtained by hedge funds have been superior to most market instruments over a long period of time. Hedge funds do particularly well during market downturns. For instance, while the benchmark S&P 500 index lost 14%, 17.8% and 21.1% in 2000, 2001 and 2002, the Van Global Hedge Fund Index, which measures performance across approximately 5,800 funds, gained 8.4%, 6.3% and 0.1% over the same periods. The events of 2008 are an apparent exception to this rule, but may turn out to have been exceptional. There is risk, of course. However, many experts feel that the risky nature of hedge fund investment has been overstated. Although managers are generally somewhat secretive about inves
