Why do people invest in illiquid, high fee (2-20) and inconsistent below average returns (for the majority of funds) when you can buy a vanguard extremely liquid, low fee and an almost guaranteed 10% return (long term)?
are hedge funds going away?
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If you have the right people working for you with a good network to pick top performing managers it can be extremely profitable (See David Swenson). Assuming liquidity isn't an issue (pension funds or college endowments like Yale) inefficient markets give you a better opportunity to take advantage of undervalued/mispriced assets vs efficient, liquid assets like Vanguard. Obviously easier said than done to pick the right 3-5 funds in a pool of 20. Definitely not as profitable as the 90s or early 2000s but that’s the general thinking I suppose.
The best HFs work even after fees. And indexing isn't guaranteed to work just because it worked before. There've been many decade-long+ windows in the past where indexes were flat to LSD up annualized and in contrast you had funds like Magellan putting up 20%+ annualized.
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