Megan Barnett reckons that all hedge funds are high-risk investments. Because of their performance fees, she says, they’re incentivized to take greater risks because it’s there that the big money lies.
I like these arguments from incentives, because they do have a habit of cutting through the bullshit. But I also wonder: is there such a thing as a low-risk hedge fund? Apparently Falcon Strategies Two B LLC, founded by one V. Pandit, "promised annual returns of between 7 percent and 10 percent"; it’s unclear whether that’s net of the 2.5% management fee. Are there many hedge funds aiming for single-digit returns? Have any of them done particularly well, in terms of growing their AUM? Maybe Sebastian Mallaby will know.