A New Book On The Hedge Fund ‘Mirage’ Has Some Brutal Facts For Hedge Fund Investors

Hedge Fund plate
Spotted by Joe Weisenthal in Montauk

[credit provider=”Joe Weisenthal for Business Insider”]

Financial Times columnist Jonathan Davis made a New Year’s resolution to stop writing negative articles on hedge funds—perhaps an ill-advised goal that was made to be broken, as 2011 marked one of the worst years ever in hedge fund returns (and the worst ever since 2008).In his latest column, Davis reviews SL Advisors founder Simon Lack’s new book ‘The Hedge Fund Mirage,’ which offers advice on investing in hedges but also outlines a stark truth about the industry’s performance.

Some bitter takeaways from Lack’s book, according to Davis:

  • Hedge fund indices track compounded rates of return over the long-term for hedge funds. which is misleading and doesn’t actually represent how much profit has been made and returned to investors. 
  • On asset-weighted basis, investors would have made more money investing in government bonds than hedge funds in the last decade.
  • Hedge funds lost more money in 2008 than the entire industry had ever made. Ever.
  • The hedge fund industry performed better when it was worth $200 billion, but now that it’s worth over $1.9 trillion—things aren’t as sunny. (Bear in mind that many hedge fund managers think the industry is poised for more growth and that many investors continue to be attracted to hedge funds because of its unregulated nature.)
  • “Once you make adjustments for survivorship bias, fund of funds fees and so on, it is probable… that hedge fund managers have kept all the money made, and investors have in aggregate received nothing.”

Read the FT piece here >