The financial crisis of 2008 ushered in the era of the Black Swan hedge fund, which basically allows institutions to bet that highly improbable events will occur that will tank the stock and/or bond markets. The notion that Black Swans are more likely to recur these days has allowed some funds to raise lots of money.

In the wake of the U.S. debt downgrade fiasco and the on-going European debt crisis, we're seeing some of these funds fare well. Bloomberg notes Saba Capital Management $550 million tail risk fund has risen 11.5 percent in September after increasing 15 percent in August, and the Pine River Capital Management $160 million tail fund advanced rose nearly 15 percent in August. Mighty impressive at a time when the average hedge fund is posting some losses.

I'm not sure the success of these firms is all that profound. There have long been bear funds or short funds that seek to gain from big drops in stocks and bonds. Short funds have seen better days that's for sure. The difference may be that the black swan funds are betting on massive, end-of-the-world drops in the markets or a big surge in the VIX.

In the end, it may make sense, especially now, to buy some insurance. That's probably the best way to think about. Over time, you would have to expect that the money you invest will be lost as the fund repeatedly losses its bets. That's okay if you were simply buying insurance. And that's precisely what more institutions want these days. We'll see how long this lasts.

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