The State of the Hedge Fund

Despite the continuing turbulence in the markets, many investors are showing an increased appetite for risk: Hedge funds gained a solid $7.6 billion in new investments in March, according to figures released last week. Total assets in hedge funds are at their highest level since late 2008, at $1.64 trillion.

The most popular style of hedge fund at this moment is the event-driven fund. Event-driven funds try to exploit price inefficiencies created by specific events affecting corporations, such as bankruptcies, mergers, restructurings or private equity investments. These funds took in the most money of any of the hedge fund groups in March.

Even so, these somewhat secretive vehicles, which generally come with the allure of fabulous returns, have hardly been setting the world on fire. The same report showed that event-driven funds have returned 4.7 percent in the year to date. The S&P 500 has returned 1.9 percent year-to-date, so those hedge funds are delivering marginally better performance for a lot more risk.