Hedge funds [and mainstream asset management services] extract huge fees in exchange for the promise of sophisticated investment strategies to capture above market returns that are uncorrelated with broad market declines. In practice nearly all of them fail to deliver on both. You might think people would stop believing the sales puff and stop handing them funds to mangle. You might think that pension trustees, at least, would sober up. You would be wrong. Read A Hedge Fund Sales Pitch casts a spell on public pensions:
One reason pensions turn to hedge fund managers is to try to close the expansive gap between what the pensions owe their beneficiaries and the amount of funds that they have to meet those obligations. According to a report by the Pew Charitable Trusts, that gap was around $1 trillion in 2013, the most recent year available.
To stop believing in the highly improbable promises of financial magicians, demands that one acknowledge capital shortfalls and funding deficits head on in order to formulate practical plans. Apparently it is easier to believe in fairies.
Unfortunately the costs of these misguided beliefs are frequently devastating for individuals. And in the case of pensions, for we the taxpayers, who are then pledged to make up funding deficits through increased capital contributions to both public pensions and social programs.