Problems occur when a market shift reduces investment opportunities after a period when investor capital has been scaled up. The current climate portends such a shift.

Almost 30 years on, the great bond massacre of 1994 still looms over Wall Street. So when Federal Reserve Chair Jerome Powell pitches 1994 as the model of what he’s trying to achieve in this interest-rate cycle, it’s enough to cause shivers on trading floors. “In three episodes,” he observed in a recent speech, “in 1965, 1984, and 1994 – the Fed raised the federal funds rate significantly in response to perceived overheating without precipitating a recession.”

Hedge funds have long been criticized for underperforming the bull market in stocks for the past decade. But as markets get more challenging and interest rates climb, it’s their risk-management skills – not their performance record – that could underpin an upturn in the industry’s fortunes.