the vast majority of hedge funds are total frauds in that they cannot deliver 'alpha' on a consistent basis. its a great scheme though.. raise money, play with it, get lucky, get huge bonus and fee, they can never take that away from you, what happens after that doesnt matter. risk to manager? zero. the end.
The reason could be such developments like this one (correlation reversal): http://www.elitetrader.com/vb/showthread.php?s=&threadid=252187 Since they very often use pairs trading then they maybe overlooked such correlation reversals in their auto trading algos....
yep, and in every prospectus you'll find disclaimers that state in more eloquent terms, "we are not sure if you'll do well, we actually have no idea" lol. but do people care? nope. so the show goes on. why not? yes, there are the 1%ers that actually do deliever year after year after year (rentec) but most are closed to new investors. this is taken from a goldman sachs prospectus for one of their quant funds.. Management Risk. A strategy used by the Investment Adviser may fail to produce the intended results. The Investment Adviser attempts to execute a complex strategy for the Fund using a proprietary quantitative model. Investments selected using this model may perform differently than expected as a result of the Component Market Factors used in the models, the weight placed on each Component Market Factor, changes from the Component Market Factorsâ historical trends, and technical issues in the construction and implementation of the models (including, for example, data problems and/or software issues). There is no guarantee that the Investment Adviserâs use of the quantitative model will result in effective investment decisions for the Fund. Additionally, commonality of holdings across quantitative money managers may amplify losses