Some investors may not be fully aware of the risks they face as career-conscious hedge fund managers plump for strategies that build a convincing-looking track record but occasionally backfire badly.

rtr1b3szAccording to a paper by Yale academic Hongjun Yan, hedge fund managers are far more likely to choose so-called 'nickel' strategies than 'black swan' strategies, even if returns are ultimately lower and they risk the occasional huge loss.

Nickel strategies are -- rather like the contrived image of picking up nickels in front of a steamroller -- those that yield small returns most of the time with the occasional disaster.

Yan says the carry trade, merger arbitrage and convertible arbitrage fall into this category.

The problem for unwary investors, as witnessed by last year's big losses by some funds, is that these trades occasionally go wrong, especially if a lot of other funds are doing the same thing.