Most hedge funds don’t make exceptional returns. It’s just as difficult for them to predict the future as it is for others. They have some advanced strategies, such as merger arbitrage, convertible arbitrage, etc. that are supposed to provide steady earnings and if done correctly, not blow up. Many of them have the goal of market neutral earnings. In other words, they make money regardless of the DOW or NASDAQ.

Yes, if you invest in a hedge fund, you may very well lose all your money. This is basically impossible with an index or mutual fund.

There has become so much competition that hedge fund managers are doing things that they ordinarily wouldn’t do. Also, the business is so lucrative that it’s worth taking a shot at big, fast returns and if they miss, they can always start another fund. There are now HF managers forcing the hand of management and getting them to buy other firms or sell their own firm to maximize the equity return.

Main street doesn’t need to be involved in this, but why shouldn’t they be allowed to invest if they want to? The criteria for an “accredited” investor is based solely on money, which isn’t a real basis of market knowledge. If a person can day trade stocks, options or commodities, why can’t they place money with a HF? Many hedge funds will allow as little as $25k or less, well within the reach of the many investors. The issue regarding the public that seems to be at hand is how to “accredit” investors, yes?