> Why don't you target that anger and contempt to the organizations willfully giving money to these organizations?
This happens from time to time. Most recently, in pensions withdrawing from private equity. It’s historically come to bite when these managers hit a bout of volatility. Put simply, portfolio theory is incredibly robust.
The question isn’t why hedge funds, but why does it keep paying so well?
Why can hedge funds negotiate such high fees despite lackluster performance?
You answered it in the prior sentence: portfolio theory is incredibly robust. They (claim) to provide diversified return. The idea is that although they may not provide a net return comparable to low cost equity ETFs, they provide diversified return. And portfolio theory tells us lower yielding assets can actually increase your portfolio's risk-adjusted return, as long as it's not perfectly correlated with your existing investments.
Whether this plays out in practice is a different story, but that's the idea and selling point.
> Why can hedge funds negotiate such high fees despite lackluster performance?
As you point out, what counts as performance varies. Magnitude of net returns is important. But by analogy, you could get massive net returns betting on the Powerball.
This happens from time to time. Most recently, in pensions withdrawing from private equity. It’s historically come to bite when these managers hit a bout of volatility. Put simply, portfolio theory is incredibly robust.
The question isn’t why hedge funds, but why does it keep paying so well?