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At the risk of being called hypocritical after long advocating the use of hedge funds as a way of managing the downside risk of an investment strategy, I have swung 180 degrees in the other direction. For 13 years I was a convert. I believed that the use of complex strategies, including concepts such as "shorting", "leverage" and "downside risk management", in the hands of very smart people had the potential to deliver on the loose promise of returning two-thirds of equity market upside and one-third of the downside.When faced with the risk of emerging markets exposure, the capital protection proposition was just too appealing, despite the astronomical fees hedge funds have been charging. A typical fee structure used to be at least 1% basic management fee and 20% of all positive returns, with a high-water mark in place (the latter means that performance fees can only be levied on the positive returns once — if the performance dips, the loss first has to be recovered before new perfo...

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