Hedge funds and other forms of alternative investing have never been for the faint of heart. John Paulson led his investors to fantastic gains by betting on the collapse of the housing market, but as of a month ago his largest funds were experiencing double-digit losses.

Nevertheless, the same or worse could be said about the broad equity markets, which have been on a crazy ride since September 2008. That's why wealth management firms have started adding alternative investments to their menu of choices to meet the desire of clients to reduce volatility in their portfolios.

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