Among the arguments made for investing in hedge funds is that they reduce the tail risks of traditional portfolios. In other words, they are expected to at least avoid the impact of market crises.
Unfortunately, the 1998 implosion of Long-Term Capital Management and the global financial meltdown in 2008 demonstrated that this hypothesis is incorrect. In both cases, most hedge funds suffered large losses—losses that were often associated with large, simultaneous liquidation by investors, which in turn led to liquidity crises.
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