There are significant differences between hedge funds and mutual funds. With hedge funds, there surely seems to be a difference in our ability to access top financial people based on our net worth. The ability of the manager to take any position they want (long, short, leverage, stocks, bonds, currencies, derivitives, domestic, foriegn, etc.). This provides a flexibility not available to mutual fund managers that have a prospectus that outlines the rules of trading for the fund. The second and perhaps most important aspect is the hedge fund managers get a % of the profits whereas mutual fund managers only get a small fee. So the hedge fund manager doesn’t get paid until the investors do, as you point out. This seems to align the goals of the manager with the investor much better than the mutual fund industry which many have called just marketing firms with a investment company attached. In the mutual fund business, you try to beat your bench mark, something 80% of them don’t do. They make money off fee’s which are set regardless of preformance.