Extreme Money

Gradually problems emerged. Hedge funds did not consistently deliver alpha, and returns were disappointing – in some periods lower than the broader equity market.¹ Average returns dropped from 18.3 per cent per annum in the 1990s to 7.5 per cent in the 2000s.²

Investment genius was always little more than a short memory and a rising market. Edwardian novelist Max Beerbohm was vindicated: ‘The dullard’s envy of brilliant men is always assuaged by the suspicion that they will come to a bad end.’

But investors still chased yesterday’s returns. The focus now shifted to diversification, using hedge funds to balance the risk of traditional investments. ...