Many hedge funds only make money when stocks are rising and economic conditions are tranquil, according to Roy Niederhoffer, who runs $1bn of hedge fund money. “They often fail to provide a hedge during bear markets and periods of illiquidity,” says Mr Niederhoffer.

As evidence, he points to the Hedge Fund Research Fund Weighted Composite Index whose trailing three-year monthly returns through August were on average 0.80 correlated to the S&P 500. In contrast, Mr Niederhoffer’s Diversified Program was -0.55 correlated with the broad market over the same period.