16How Hedge Funds Operate and Are Sold

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A few years ago, I was the chairman of the investment subcommittee of the board of an important and creative nonprofit organization near Aspen, Colorado. The investment subcommittee was part of the finance committee, so it often met as part of a finance committee meeting.

As chairman of the investment subcommittee and the person most knowledgeable about investments, I recommended a fairly high allocation to stocks for the nonprofit’s small endowment of about $8 million (since it would be invested for the long run). I recommended passive funds—that is, indexes—for the actual investments. After some discussion, ...

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