Why Do People Invest In Hedge Funds?

Carl Richards asks. Kevin Roose’s answer:

I think you have, on one hand, a bunch of pension funds and sovereign wealth funds that are duty-bound to make a certain amount of money for their members, and would rather use a single-digit fraction of their cash pile to swing for the fences in Hedgistan (investing in a fund that might gain 80 percent in a year) than eke out 5 or 6 percent gains in plain-vanilla funds. I think you have, on the other hand, a set of high-net-worth individuals who want to invest in hedge funds because it makes them feel special and exclusive and gets them invited to cool parties, but are increasingly trying to scale back their obviously stupid investments (funds-of-funds) in favor of slightly less stupid investments.