Tuesday, January 10, 2012
Review of The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True By Simon Lack
Read it at The Financial Times
Exposing the false promise of big money wins
By Dan McCrum
Published by Wiley
(h/t Clonal)
Publisher's Description
The dismal truth about hedge funds and how investors can get a greater share of the profits
Shocking but true: if all the money that's ever been invested in hedge funds had been in treasury bills, the results would have been twice as good.
Although hedge fund managers have earned some great fortunes, investors as a group have done quite poorly, particularly in recent years. Plagued by high fees, complex legal structures, poor disclosure, and return chasing, investors confront surprisingly meager results. Drawing on an insider's view of industry growth during the 1990s, a time when hedge fund investors did well in part because there were relatively few of them, The Hedge Fund Mirage chronicles the early days of hedge fund investing before institutions got into the game and goes on to describe the seeding business, a specialized area in which investors provide venture capital-type funding to promising but undiscovered hedge funds. Today's investors need to do better, and this book highlights the many subtle and not-so-subtle ways that the returns and risks are biased in favor of the hedge fund manager, and how investors and allocators can redress the imbalance.
• The surprising frequency of fraud, highlighted with several examples that the author was able to avoid through solid due diligence, industry contacts, and some luck
• Why new and emerging hedge fund managers are where generally better returns are to be found, because most capital invested is steered towards apparently safer but less profitable large, established funds rather than smaller managers that evoke the more profitable 1990s
Hedge fund investors have had it hard in recent years, but The Hedge Fund Mirage is here to change that, by turning the tables on conventional wisdom and putting the hedge fund investor back on top.
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4 comments:
I have some dry Hedge Fund risk management books. This book seems like a restatement of those risk factors in a really engaging manner.
It's well known among analysts small managers out perform - but these managers also have higher fraud risk.
TC,
What Tom left out of the picture, was what was said in my original link to Tim O'Reilly's post (of the O'Reilly Publications)
Quote:
from 1998 to 2010, 84% of the investment gains of the entire hedge fund industry went to the managers, and only 16% to the investors. The thievery of our "financial industry" beggars the mind. Never mind the 1%! This is a tiny fraction of the 1% fleecing the rest of the 1%.
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"Once you make adjustments for survivorship bias, fund of funds fees and so on, it is probable, he suggests, that hedge fund managers have kept all the money made, and investors have in aggregate received nothing."
Thanks for putting that in, Clonal. I had intended to but was just working fast and skipped over it.
Mark Spitznagel is another hedge fund manager following Austrian Economics - What could go wrong?
http://dealbook.nytimes.com/2013/09/24/a-hedge-fund-manager-who-doesnt-mind-a-losing-bet/?partner=yahoofinance&_r=0
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