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The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True
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.
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.
208 pages, Hardcover
First published November 30, 2011
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228 people want to read
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Displaying 1 - 10 of 10 reviews
April 4, 2013
Author is 25 yr veteran of Wall St, has convinced himself that he is the only one who has noticed that hedge fund managers get rich and that hedge fund returns were much better when there was less money/competition in the business. One worthwhile point: useful to look at a fund's asset-weighted returns vs time weighted; the author has done that and shows the results over the first 17 pages. It's best to stop reading right there.
August 20, 2012
(4.0) Less concerned about not participating in the hedge fund charade
From the obscene fee structure to absence of transparency to rigid redemption gates/schedules to outright fraud, Lack walks us through everything wrong with hedge funds. It's a pretty straightforward argument that he makes well (in about ten pages).
He also spends a fair amount of time telling us about his time selecting hedge funds to provide seed funding for...and getting a share of the fees from other investors. We see that this is where the real money is made in hedge funds (and clearly not going to the investors).
Given that hedge funds are only available to qualified investors, you'd think they'd be shrewd enough to do proper research into these investment options. But it seems pretty clear that you're hardly doing better than treasuries unless you're really lucky...but if you're not able to see the positions, have to just trust the NAVs you see, can't get your money out, and give over half the profits over in fees (in a great year!), it just seems like far too much risk and illiquidity for modest gains. It's just surprising the industry is still around. Perhaps a decline is in the making?
From the obscene fee structure to absence of transparency to rigid redemption gates/schedules to outright fraud, Lack walks us through everything wrong with hedge funds. It's a pretty straightforward argument that he makes well (in about ten pages).
He also spends a fair amount of time telling us about his time selecting hedge funds to provide seed funding for...and getting a share of the fees from other investors. We see that this is where the real money is made in hedge funds (and clearly not going to the investors).
Given that hedge funds are only available to qualified investors, you'd think they'd be shrewd enough to do proper research into these investment options. But it seems pretty clear that you're hardly doing better than treasuries unless you're really lucky...but if you're not able to see the positions, have to just trust the NAVs you see, can't get your money out, and give over half the profits over in fees (in a great year!), it just seems like far too much risk and illiquidity for modest gains. It's just surprising the industry is still around. Perhaps a decline is in the making?
March 30, 2018
Este será un libro que interesará a aquell@s que trabajen en finanzas y en inversiones, ya que enseña la mamera en que muchos gestores de hedge funds engañan a los inversores: métodos incorrectos (a propósito) para reportar una rentabilidad mayor de la que es en realidad, condiciones muy favorables para el gestor y malas para el inversor y, sobre todo, una rentabilidad pésima. Cuando los hedge funds tuvieron que hacer honor a su nombre en 2009 (ser una cobertura frente al mercado), lo cierto es que cayeron tanto o más que los principales índices de referencia.
Simon Lack sabe de lo que habla, ya que estaba en el equipo de JP Morgan que invertía en hedge funds, y lo curioso es que el principal retorno no venía de la rentabilidad de los fondos, sino en las comisiones que generaban y de las que daban una parte al propio JP Morgan, Esa es la razón por la que vemos a tanto gestor de hedge funds con un patrimonio envidiable: no viene tanto por la rentabilidad del fondo sino por las comisiones que genera.
Simon Lack sabe de lo que habla, ya que estaba en el equipo de JP Morgan que invertía en hedge funds, y lo curioso es que el principal retorno no venía de la rentabilidad de los fondos, sino en las comisiones que generaban y de las que daban una parte al propio JP Morgan, Esa es la razón por la que vemos a tanto gestor de hedge funds con un patrimonio envidiable: no viene tanto por la rentabilidad del fondo sino por las comisiones que genera.
June 2, 2017
Simon speaks the truth about the genuine figure of hedge fund industry..it is really not about the positions or investment allocations of the funds, or even diversity or spread of the funds..BUT the manager you pick..and the so called market performances of high yield and return for hedge funds are overrated....good wake up call...
October 19, 2024
Excellent premise that the hedge fund industry has underperformed risk-free T-bills for the average investor with a good explanation of key reasons why this is so. I do love a good takedown. One drawback of the book is that the arguments could have easily been made in a long article and the book repeated concepts multiple times to fill space. Very informative and eye-opening though.
December 2, 2018
Some good insights into the hedge fund industry by an investor in both their funds and managers. On balance, it’s better to invest in the hedge fund manager or then invest in small hedge funds.
March 5, 2017
"The hedge fund industry has grown on the basis of generating uncorrelated, absolute returns and having insight into when deploy capital into and out of different strategies, sectors and opportunities" (p15).
Costs of hedge funds are high (2% and 20% on profit, and also unseen costs of admission, possible frauds etc); "The opaque nature of the hedge fund investment means that it is often impossible to see what actual risks are being taken (p112).
The cautionary and realistic tale of hedge funds of this book is summed up on page 168-169: "Hedge funds will continue to attract the most talented investment managers and traders. Theres nothing else that's close to providing the opportunity for serious wealth creation. If the best managers are running hedge funds, accessing the best will require being a hedge fund client. But investors who can recognize what made the industry so succesful -and acknowledge where their goals are inconsistent with what the industry can provide- will demand better terms, transparancy, liquidity, fees, and information."
Costs of hedge funds are high (2% and 20% on profit, and also unseen costs of admission, possible frauds etc); "The opaque nature of the hedge fund investment means that it is often impossible to see what actual risks are being taken (p112).
The cautionary and realistic tale of hedge funds of this book is summed up on page 168-169: "Hedge funds will continue to attract the most talented investment managers and traders. Theres nothing else that's close to providing the opportunity for serious wealth creation. If the best managers are running hedge funds, accessing the best will require being a hedge fund client. But investors who can recognize what made the industry so succesful -and acknowledge where their goals are inconsistent with what the industry can provide- will demand better terms, transparancy, liquidity, fees, and information."
February 28, 2013
Here is my comment in my Spanish Blog: http://lunairereadings.blogspot.com/2...
No new ideas come in this book. Any person with common sense will see through the mirage of big earnings with little investment. This book explains in a lot of pages and with a lot of good information that the hedge funds are a business profitable only for the manager of the hedge fund; but not for the investors. The latter would be lucky if the can keep their money without losing a dime. The managers will get richer and richer; and they obviously will continue to try to sell the old free lunch idea to young and unexperienced potential investors. This is a very good book for those who need yet another proof or a very well known truth: there is no such thing as free lunch; and some people have learned it the hard way.
No new ideas come in this book. Any person with common sense will see through the mirage of big earnings with little investment. This book explains in a lot of pages and with a lot of good information that the hedge funds are a business profitable only for the manager of the hedge fund; but not for the investors. The latter would be lucky if the can keep their money without losing a dime. The managers will get richer and richer; and they obviously will continue to try to sell the old free lunch idea to young and unexperienced potential investors. This is a very good book for those who need yet another proof or a very well known truth: there is no such thing as free lunch; and some people have learned it the hard way.
February 28, 2013
This book says that the hedge funds are good for those who administer them; but for the rest of us -those who provide the money to invest- is just another way to making an extra buck if we are lucky; but by no means it is a way to make a living or become rich. That is only an illusion
June 16, 2015
This started out really interesting, since the author explained a lot of details about finance that I didn't understand, it started getting repetitive and name droppy, and I couldn't make myself finish after that.
Displaying 1 - 10 of 10 reviews