Hedge funds have become the superheroes of the invest-

ment world, producing outsized returns using a combination of rocket science and leverage. Of course, there's a darker side, as evidenced by the 1998 unraveling of Long-Term Capital Management, and to date companies that sponsor defined-benefit pension plans have been wary. But as plan sponsors struggle to remedy funding shortfalls, more and more are considering investing in hedge funds.

Are they signing on just as the kryptonite starts to take effect? Hedge funds results overall in 2004 were disappointing, leading to talk that all the money pouring into the sector was resulting in diminished returns. There's also some question about the validity of statistics on past hedge fund returns. Princeton University Professor Burton Malkiel and Atanu Saha of Analysis Group Inc. have released a paper arguing that indexes overstate hedge fund returns, in part because so many hedge funds go out of business and the indexes neglect to capture data about the failed funds.

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