LOL Ask HF managers collecting all those fees from the sheep who get sheared and keep coming back for more.
Clearly underperforming isn't the "at best" scenario, many outperform and in any case most hedge funds aim for absolute vs relative returns. If you're an institution that is looking for uncorrelated strategies for your portfolio, even the absolute returns may not be as important as correlations given how modern portfolio theory works. So very different from Vegas and lots of reasons, they just may not apply to you.
the answer is bragging rights. it is to convince others that they are members of an exclusive club with highly successful people.. of course these people are unfamiliar with the famous saying by Grouch Marx, the famous comedian: I would not want to be a member of a club that would accept me as a member.
correct. it applies to sophisticated institutions not to clueless people in this area but are wealthy individuals.
Do you have an example of a well performing hedge fund over the last 15-20 years? Curious since you have your one hit wonders, people who then attract money like moths to a light and somehow they parlay that one time hit into milking people for years.
Renaissance has a 35% annualized return over 20 years, for one. Again, however, you invest in hedge funds if you're putting together a portfolio where correlation matters per modern portfolio theory. That's why the majority of their LPs are institutional investors, for whom hedge funds make up a small percentage of their portfolio. If all you care about is 20 year returns, hedge funds probably aren't for you.
Pretty much every "real" hedge fund manager has at least 50% of his net worth invested in the fund. Otherwise, you can't get a a penny of institutional money - it's the first question they ask. So if you gonna lose money, a big part of it is gonna be your own. Plenty. Most of the names we hear are there because they lose money or have massive redemptions. I can think of many multi-yard names that have been brining home double digit returns for the last 15 year.
Because they think that for them it is the best solution as they hope thet HF will lose their money more slowly then the other options that are available.
The problem is that for years already it is impossible to put your money in Renaissance. So what's the value for people who want these returns? Zero possibilities. So although you are right about the returns the example is useless, it is like hindsight trading.