Hedge fund managers are fund managers. In general, fund managers make money in proportion to the magnitude of funds under their management. This proportion tend

Hedge fund managers are fund managers. In general, fund managers make money in proportion to the magnitude of funds under their management. This proportion tends to be bigger for the hedgies than for other fund managers. (Often so-called `2 and 20' fees are charged: 2% of funds under management and 20% of investment gain (often subject to a high water mark) per annum.) All else being equal, good performance leads to inflows and poor performance to outflows. However, many institutional investors have been increasing their hedge fund allocations despite the hedge fund world underperforming typical simple passive strategies over the past five years. This could be in the hope that the hedgies will outperform during the next bear market / downturn / financial crisis; after all, the whole point of hedge funds is supposed to be to achieve reasonable positive absolute returns come what may.