Is there any risk of investing in Hegde funds?

Hedge funds are considered to be the riskiest of all asset classes. Almost everybody considers hedge funds to be completely speculative in nature. In a short 20 year span, the market has seen many hedge funds rise to prominent positions only to come crumbling down later. The average life of a hedge fund is 7 years.

The ability to consistently beat the stock market is a vanishingly rare talent. In addition, any kind of special skill developed by a given manager will be figured out and replicated, erasing the advantage. It’s inevitable. Many hedge funds fail because it’s simply impossible to attract enough investment to make it worth the manager’s efforts to keep it open.

The management fee comprises a larger portion of total compensation and when funds grow large, a fund’s optimal size, from a compensation perspective, exceeds the size that is optimal for performance.