Extreme sport isn’t the only venue for thrill seekers and adrenaline junkies, judging from the recent returns racked up by so-called “black swan” funds. The funds, named after the generic term for an unexpected event that negatively or positively impacts the market, take advantage of the resulting volatility.

“Investors are pouring into doomsday black swan funds, spurred by the spreading European debt debacle and Standard & Poor’s downgrade of U.S. creditworthiness,” Bloomberg reports. “The funds entice investors with the possibility of a huge payoff if a crisis hits.”

The news service notes one of the largest funds, Universa Investments based in Santa Monica, Calif., returned about 115% to investors in 2008. Through August, the fund is up 23% for the year.

But not all are onboard with the strategy. Bloomberg notes the downside of black swan investing can be “steady pain−year after year of losses if a market catastrophe doesn’t occur. In both 2009 and 2010, Universa’s clients lost about 4%. The hedge-fund industry had a 9.2 percent gain in 2009 and an 8.2% return in 2010.”

The service quotes Philippe Jorion, a managing director in the risk management group at Pacific Alternative Asset Management Co., a fund of hedge funds, who compares this form of hedging with homeowners’ insurance: The premiums paid by the homeowner usually exceed the benefit over time. On top of the ongoing losses, black swan hedge funds typically charge a 1.5% management fee and take 20% of any profit.

“The problem we have is that these hedging strategies tend to do well only when volatility is high,” Jorion says. “But over the long run, there can be stretches over many years where these strategies are expensive to run and bleed money.”