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16 of 22 people found the following review helpful
5.0 out of 5 stars Incredible Findings -, January 24, 2012
This review is from: The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True (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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Location: Phoenix, AZ.

Top Reviewer Ranking: 1,919