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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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"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 tricks...an 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
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.
Top Customer Reviews
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.Read more ›
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.Read more ›
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.Read more ›
Most Recent Customer Reviews
This book has the tone of one of those election-year memoirs published by presidential candidates. Mr. Read morePublished 8 months ago by pluto1999
Very interesting book regarding the fallacy of the investment wizards. Interesting to read that the investment banks made money from hedge funds by seeding them for future... Read morePublished 12 months ago by S.T.S
Well done and quite readable. As far as I know, no one has undertaken to write a rebuttal to this excellent book. Read morePublished 23 months ago by Timothy Mcglinn
Enjoyed book immensely Working in the capital markets it has become highly relevant to understand how hedge funds make profits and declare good returns for the fund but not for... Read morePublished on June 12, 2014 by Guy
Lack's book is a good balance between substantive data that gives weight to his observations and anecedotal stories that keep the reader engaged.Published on February 15, 2013 by Salew
Very credible review from an experienced observer. Anyone thinking of investing in hedge funds directly or as an adviser or trustee should read this account.Published on November 28, 2012 by James H. Gately
I read this hoping to see a new, fresh perspective. What a waste. The general thesis is totally flawed and built on anecdotal observations that are completely useless. Read morePublished on October 21, 2012 by William Moore