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The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True Hardcover – January 3, 2012


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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: 6.3 x 0.8 x 9.3 inches
  • Shipping Weight: 13.6 ounces (View shipping rates and policies)
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (23 customer reviews)
  • Amazon Best Sellers Rank: #383,810 in Books (See Top 100 in Books)

Editorial Reviews

Review

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

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

"Devastating little book.... His conclusions will makeuncomfortable reading for many self-styled 'masters of theuniverse'.... This book should be required reading for pension fundtrustees." (Jonathan Ford, Financial Times, 19th February2012) 

 













From the Inside Flap

Sure, hedge funds have produced some of the greatest fortunes inrecent years, but the shocking reality is that investors would havemade more putting their money into treasury bills instead. Andwhile hedge funds have proved to be serious moneymakers for thosethat manage them, investors themselves rarely reap the benefits. InThe Hedge Fund Mirage: The Illusion of Big Money and Why It'sToo Good to Be True, hedge fund expert Simon Lack blows the lidoff the secret world of this class of investments, teaching youeverything you need to know to maximize your own returns.

Drawing on an insider's view of hedge fund growth during the1990s, a time when investors in the field did well in part becausethere were relatively few of them, The Hedge Fund Miragechronicles the history of the hedge fund, highlighting the manysubtle and not-so-subtle ways that returns and risks are biased infavor of the fund manager, and how investors and allocators canredress this imbalance. Packed with information about the industryand what's wrong with it, the book steers you away from the trapsthat befall so many investors. Full of helpful pointers on how toreally get the most out of your hedge fund investments, itencourages using new and emerging hedge fund managers whose returnsare generally better, negotiating more assertively for strongerinvestor rights, and warns anyone putting their money in the handsof a manager to demand complete transparency at all times.

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

Customer Reviews

I couldn't put the book down, informative and entertaining.
Neil Chelo
Equity returns were extremely volatile but went nowhere as the stock market still has to recover from its peak levels in early 2000.
Gaetan Lion
Hedge funds with good performance give the databases their early performance.
David Merkel

Most Helpful Customer Reviews

107 of 116 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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13 of 13 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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6 of 7 people found the following review helpful By LD TOP 500 REVIEWERVINE VOICE on March 16, 2012
Format: Hardcover
I've heard the media say that the rich invest in hedge funds which out perform mutual funds and that is why their wealth is growing. And we commoners don't have the million bucks to become a client. Simon Lack has all the insider numbers that completely demolish the media's infomercial. We just saved ourselves a lot of pain and suffering. He also discusses short sellers and mergers.

Here are some of the secrets:
Hedge funds are not required to report their results. So the top earners report theirs, the rest don't. The gross profit is reported but once the fund pays itself and its owners the investor gets about what he would have in an index fund.

1998-2010 hedge fund avg. return was 7.3% but when true losses (not percentages) are used the return was 2.1%. If you owned corp. bonds 1998-2010 you averaged 7.2%.

In 2008 hedge funds lost more than all their profits in the previous 10 years and they refused to allow you to get your money out.

Chapter 3 explains the attraction of helping to fund a start-up hedge fund to big banks and speculators. Like a chain letter, the first ones in get most of the payout. George Soros became a billionaire running his hedge fund for the fees not by investing in the fund. "Never in the history of Finance was so much charged by so many for so little".

In 2010 out of $83 billion in profit, $38 billion went to fees.

P.147 "An unfortunate feature of hedge funds is that if you want to defraud people, a slightly mysterious trading strategy with an apparently strong history of performance in a limited partnership structure generally outside the the regulatory framework is one of the best ways to do it."

P.166 "Public pension plans continue to plow substantial sums into hedge funds.
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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).