What hedge funds are really good at is creating a tax strategy for the rich. Let's say you have a business and you want to pay less tax. You talk to a hedge fund.

The hedge fund says, let's convert all your earnings that should be taxed at the short term gains rate and convert them to long-term capital gains!

The hedge fund takes two well-correlated stocks, let's say Coke and Pepsi. They make a hedge going long Coke and short Pepsi. The hedge doesn't make or lose money, but you engineer the hedge so that you hold your long Coke shares 366 days (long-term). You sell your Pepsi shares after 364 days (short-term).

You haven't made any money, but you've engineered short-term capital losses and long-term capital gains. Of course you've created your hedge such that your short-term losses offset your business' short-term gains. Now your profits are in the long-term Coke stock, and rather than paying a 50% marginal tax rate, you pay 20%.

Yay hedge funds!