|   The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True By Simon Lack A book review by Luka Lukic of t1ps.com The Hedge Fund Mirage costs just £16 in the Square Mile Bookstore and can be bought by clicking here. Hedge funds have always been the talk of the town. Every year we read about the billions paid to top managers and investors rush to give their money to them in the hopes of enjoying exceptional returns. However, in this brutally honest book, industry insider Simon Lack looks to strip away the facade and reveal the cold truth about the profits hedge funds actually make. In the first sentence of the book he writes: "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." A staggering statement which leads us to question why they have been placed on a pedestal.
The problem, Lack points out, is that there are a number of reasons that make it very difficult to keep track of the performance of hedge funds. The most predominant one being that they are not obliged to disclose their results. The strong will survive while the weak disappear into obscurity without a whisper, taking their investors money with them, leaving the public with a very lop sided image. Lack claims that in 2008 the industry lost more money that it ever made since it was first founded, supposedly in 1949 by Alfred Winslow Jones, and yet total assets under management continued to rise to over $1.6 trillion.
But let us say that we do invest in one of the good hedge funds. Surely we can sit back and assume we will get a fair return? The funds will take a portion of the profits in fees but it can't be that much... can it? Unfortunately it can as Lack goes into the intricate details of the hedge fund fee system, with floating fees on top of fixed fees and all sorts of convoluted technicalities that result in the funds typically making more money than their clients. Another one of Lack's astonishing statements is that of a total profit of $449 billion made by the industry from 1998 to 2010, $379 billion has gone into paying fees, leaving investors with a paltry 16% of the total returns generated. This goes without mentioning the additional charges heaped on by funds of funds, designed to give smaller investors access to the more exclusive hedge funds. Overall, this is an insightful book into a very secretive sector of the financial world. It is a must-read for anyone thinking of investing in a hedge fund. The Hedge Fund Mirage costs just £16 in the Square Mile Bookstore and can be bought by clicking here. Visit www.SquareMileBookstore.com for the ultimate range of investment, trading and business books, personally selected by investment experts, with exclusive free reviews from some of the UK's foremost investment writers. |
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