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The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True Hardcover

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The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True + The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds + Hedge Fund Market Wizards: How Winning Traders Win
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Product Details

  • Hardcover: 208 pages
  • Publisher: Wiley; 1 edition (January 3, 2012)
  • Language: English
  • ISBN-10: 1118164318
  • ISBN-13: 978-1118164310
  • Product Dimensions: 9.3 x 6.3 x 0.6 inches
  • Shipping Weight: 13.6 ounces (View shipping rates and policies)
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (20 customer reviews)
  • Amazon Best Sellers Rank: #504,120 in Books (See Top 100 in Books)

Editorial Reviews


"Simon Lack, a hedge fund veteran exposes some unforeseen and uncomfortable truths about the industry in his new book." (Hedge Fund Net, January 2012)

"...a cautionary tale from one who knows just about all the easy, largely fun and certainly instructive read" (Financial World, February 2012)

"Devastating little book.... His conclusions will make uncomfortable reading for many self-styled 'masters of the universe'.... This book should be required reading for pension fund trustees." (Jonathan Ford, Financial Times, 19th February 2012) 


From the Inside Flap

Sure, hedge funds have produced some of the greatest fortunes in recent years, but the shocking reality is that investors would have made more putting their money into treasury bills instead. And while hedge funds have proved to be serious moneymakers for those that manage them, investors themselves rarely reap the benefits. In The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True, hedge fund expert Simon Lack blows the lid off the secret world of this class of investments, teaching you everything you need to know to maximize your own returns.

Drawing on an insider's view of hedge fund growth during the 1990s, a time when investors in the field did well in part because there were relatively few of them, The Hedge Fund Mirage chronicles the history of the hedge fund, highlighting the many subtle and not-so-subtle ways that returns and risks are biased in favor of the fund manager, and how investors and allocators can redress this imbalance. Packed with information about the industry and what's wrong with it, the book steers you away from the traps that befall so many investors. Full of helpful pointers on how to really get the most out of your hedge fund investments, it encourages using new and emerging hedge fund managers whose returns are generally better, negotiating more assertively for stronger investor rights, and warns anyone putting their money in the hands of a manager to demand complete transparency at all times.

Hedge fund investors have had it tough in recent years, but that doesn't mean that there isn't money to be made. As the success of hedge fund managers shows, opportunities are there. The dilemma for investors is figuring out how to identify managers you can trust and learning the techniques to keep more of the money generated using your capital. The Hedge Fund Mirage is here to help, turning the tables on conventional industry wisdom to put you, the investor, back in charge.

More About the Author

Following 23 years with JPMorgan, Simon Lack founded SL Advisors, LLC, a Registered Investment Advisor, in 2009. Much of Simon Lack's career with JPMorgan was spent in North American Fixed Income Derivatives and Forward FX trading, a business that he ran successfully through several bank mergers ultimately overseeing 50 professionals and $300 million in annual revenues. Simon Lack sat on JPMorgan's investment committee allocating over $1 billion to hedge fund managers and founded the JPMorgan Incubator Funds, two private equity vehicles that take economic stakes in emerging hedge fund managers. Simon Lack's deep experience in financial markets, managing complex trading businesses and overseeing hedge funds provide him with a unique perspective from which to manage investments and advise clients. Simon chairs the Investment Committee of Wardlaw-Hartridge School in Edison, NJ and also chairs the Memorial Endowment Trust Investment Committee of St. Paul's Episcopal Church in Westfield, NJ. Simon is a CFA charterholder, and the author of The Hedge Fund Mirage (release date January 2012).

Customer Reviews

Hedge funds with good performance give the databases their early performance.
David Merkel
That doesn't mean it never loses money, it means it's equally likely to lose money when the stock market is up as when it is down.
Aaron C. Brown
It is rare that I will take the time to post a review, but this book is worth the read.
Neil Chelo

Most Helpful Customer Reviews

100 of 109 people found the following review helpful By Aaron C. Brown TOP 1000 REVIEWERVINE VOICE on January 12, 2012
Format: Hardcover
This is really two books. Chapters 2 - 8 are a clear, detailed and accurate discussion of how and why to invest in hedge funds. The author weaves anecdote, simple examples and common sense into an entertaining and informative guide. It requires no financial or mathematical sophistication to follow, but it delves into important details that too many investors neglect. These chapters would make it a worthy companion to John Bogle's great Common Sense on Mutual Funds. Much of the message is the same: pay attention to fees, expenses and tax efficiency; do business with honest people; understand the product; have reasonable expectations; be prepared for losses; keep a steady course.

Unfortunately, these chapters are bookended by sensational nonsense. The calm expert who understands hedge funds is replaced by an idiot trying to get attention. It's not so much that the wild claims are wrong, it's certainly true that many--even most, depending how you count--hedge funds charge too much and fail to deliver the promised investment characteristics. The problem is that in his effort to overhype the evidence, the author gets things completely wrong (Chapter 1) which leads to some foolish advice (Chapter 9).

To start, the author explains the difference between time-weighted and value-weighted returns. An investor puts $1 million in a fund that has a +50% return, he adds another $1 million, the fund then has a -40% return. Net, the investor has lost 25% of his money. The fund will report a compound average annual growth rate of negative 5.13%. The investor lost more than that (25% over two years or negative 13.40% CAGR) because he put more money in for the bad year than the good year.
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12 of 12 people found the following review helpful By Jasper Tamespeke on August 21, 2012
Format: Hardcover
This book has shaken a few feathers in the Hedge Fund community. Its basic take is that the apparently superior returns of the hedge fund industry compared to traditional sources are not real, & to the extent that they do exist they have been taken in fees by the manager. The real return for investors, over the long term has been little more than 1%, half what could have been earned from just investing T-Bills he claims. This is a startling claim, but unfortunately the way that Lack derives these numbers does not seem to be internally consistent, or even reasonable in some cases, which unfortunately casts doubt on his whole approach.

I should say at this point that I have seen many hedge funds at close quarters, both from the inside and outside, but have no current involvement with the industry & no axe to grind. Also, I have long suspected that much of Lack's basic position is true: that overall the hedge fund industry has not performed as well as the hype would suggest, that hedge funds performed better when they were smaller and more nimble, & that the fee structure is inequitable, with the managers keeping too much of the upside for themselves. In fact this is a view that is pretty widely held & is not in itself controversial, if not universally accepted. However, Lack takes this view further than most, arguing that investors would have been better off investing in Treasuries! It is this conclusion, and the way Lack supports this with a detailed analysis of returns & fee structures that is controversial

Lack has an immense amount of experience of investing in the industry, and for anyone looking at hedge funds as an investment there is a wealth of practical advice about how to look at these strange animals.
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16 of 21 people found the following review helpful By Loyd E. Eskildson HALL OF FAME on January 24, 2012
Format: Hardcover
"If all the money that's ever been invested in hedge funds had been put in Treasury bills instead, the results would have been twice as good." 'The Hedge Fund Mirage' would be worth its price if all it contained was that single sentence.

Another - "While the hedge fund industry has generated fabulous wealth and created many fortunes, it has largely done so for itself." Per the author's calculations, industry fees from 1998-2010 totaled $440 billion, vs. $9 billion for investors. However, adjusting for survivorship bias, Lack estimates investors actually lost $308 billion in hedge funds, vs. industry fees of $324 billion.

It's not all the fault of hedge fund managers - the Federal Reserve's holding interest rates low to simulate investments and consumer credit makes it difficult for anyone to return high returns today. However, the excitement associated with hedge funds has largely been overrated, per author Simon Lack, former hedge fund management recruiter. The few really good performers (eg. George Soros and John Paulson) have covered up the mediocre performances of the rest - including LTCM. The extremely high rewards given hedge fund operators are another problem - bringing down the rewards for fund investors. And one can't ignore the Great Recession it destroyed all hedge fund profits generated in the pior decade.

Average hedge fund results in 2011 were a negative 6.4%. Despite this, assets under management rose to nearly pre-crash levels.

One reason, says Lack, is that reporting numbers overstate hedge fund performance due to stronger results in the early years when the funds and industry were smaller. The correlation between hedge fund size and performance, per Lack, is -0.42 - bigger is worse.
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