Pension funds, private investors etc. are fooled by the snake oil salesmen of finance-hedge funds, offering them newer and cooler strategies to beat the market, to hedge, to diversify, etc. Most of these are not strategies at all-they are crap being sold in colorful packages.
The basic stuff for capital markets is:
1. Common Stocks
2. Bonds of companies
3. Government bonds
All the rest can be derived from or are strongly correlated with these-and all other "strategies" to capture extra returns are garbage.
Have you seen Volkswagen stock lately? The Volks Porsche saga is great to put to test what you think is normal isn't so in the financial markets. Here's the chart. At one point Volks become the biggest market cap company in the world-even overtaking Exxon Mobil! The stock went from 200 Euros to 1000 Euros in 2 days, on massive volume-showing that this stuff can happen to large companies with good stock volume as well. I won't go into the details-nor do I pretend to know what they are-but it was something to do with betting on convergence of preferred to common. The chart says it all-if you were short Volks common your broker covered it at 4x before you even knowing what was going on.
Merger Arbitrage is a strategy they sell; it is strongly correlated to the stock market. No amout of previous experience in mergers tells you the probability of a new merger going through. There are way too many unknowns, and these are strategies which will give you a small profit if you are right, but a very large loss, possibly bankrupcy, if you are wrong. Think LTCM. Other phony strategies are Convertible bond strategies, pairs trading.
Here's a good paper by bridgewater on how all the hedge fund strategies are really no strategies at all.
And don't even talk about Volatility funds, Currency strategies (buying high yielding currencies, or buying other currencies for diversification-see this 5 year chart of the AUD vs USD. The same this happened back in 1992-1994 also) etc. They even sell volatility (yes, there are volatility funds!) and currency as an asset class! Please sell my used underwear as an asset class also-because it should have some value anyway-and it probably is less correlated to the stock or bond markets!
Taleb also reviewed a book-which mentions the dangers of all these strategies, especially when you are selling options and are shorting something.