Hedge funds are key players in the world’s financial markets, but no one knows exactly what they’re up to. Some believe these thinly regulated, secretive investment pools had a role in the subprime mortgage crisis, because they helped create a market for risky securities backed by those loans. Others think hedge funds have so much power they can whipsaw the markets at will, making money by driving prices down as well as up. Yet others think they are a beneficial stabilizing force, helping markets settle on true values by using short sales, leverage and derivatives bets that are not available to other big players like mutual funds. Critics and supporters, however, tend to share one assumption: that hedge funds are managed by some pretty talented people. Otherwise, investors would not pay the hefty management fees, typically 1% to 2% of assets and 20% of profits. But new research by Wharton statistics professor Dean P. Foster and Brookings Institution senior fellow H.…