increased relative to the market. To explain this it helps to study the makeup of these funds.  Absolute Return funds are unconstrained by asset class, region or sector. Freedom of investment is the name of the game.  To many investors this translates into a considerable lack of transparency regarding where they invest, making it difficult for the average investor to make an educated investment decision. Not only can they invest in all manner of asset classes but it is the way they invest that is crucial.  Many Absolute Return funds operate in a similar way to hedge funds; taking both long and short positions, including investments in derivatives, an investment strategy beloved by wealth speculators.  Whilst derivatives theoretically allow investors to hedge against some of the risk in their portfolio, the models used to construct these hedges are liable to be caught out by extreme events that are not represented in the historical data; exactly the events one would want to be protected against. Unlike other trades, derivatives are exposed to an additional risk, that of counterparty risk or the risk that the guarantor will fail.  The parties act on the expectation that the other side is credit worthy and will honour any losses made.  The actual size of any risk is hidden because the broker that the manager has conducted the original trade with may have used that asset in many subsequent trades.  The nightmare consequence of this was seen in 2008 when Bear Stearns, Lehman Brothers, AIG, Fannie