The Hedge Fund Mirage The Illusion of Big Money and Why It's Too Good to Be True
by Lack, Simon A.Edition: 1st
Format: Hardcover
Pub. Date: 2012-01-03
Publisher(s): Wiley
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Summary
Although some of the greatest fortunes in finance have been earned by hedge fund managers, investors as a group have done quite poorly. High fees, complex legal structures, poor timing and return chasing have led to the following stunning result: 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. Hedge fund investors need to do better than in the past in order to justify their hedge fund investments. This book will highlight 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.
Author Biography
SIMON LACK has spent his entire career in trading and hedge fund investing. After twenty-three years with JPMorgan, he founded SL Advisors, LLC, a Registered Investment Advisor, in 2009. Much of Lack's career with JPMorgan was spent in North American fixed income derivatives and forward FX trading, a business that he ran successfully through several bank mergers, ultimately overseeing fifty professionals and $300 million in annual revenues. He sat on JPMorgan's investment committee which allocated over $1 billion to hedge fund managers and founded the JPMorgan Incubator Funds, two private equity vehicles that establish economic stakes for emerging hedge fund managers. Lack's financial markets experience dates back to 1980 when he began his career on the floor of the London Stock Exchange.
Table of Contents
Introduction xi
Acknowledgments xv
Chapter 1 The Truth about Hedge Fund Returns 1
How to Look at Returns 2
Digging into the Numbers 3
The Investor’s View of Returns 6
How the Hedge Fund Industry Grew 10
The Only Thing That Counts Is Total Profits 13
Hedge Funds Are not Mutual Funds 14
Summary 16
Chapter 2 The Golden Age of Hedge Funds 19
Hedge Funds as Clients 20
Building a Hedge Fund Portfolio 22
The Interview Is the Investment Research 24
Long Term Capital Management 27
Too Many Bank Mergers 30
Summary 33
Chapter 3 The Seeding Business 35
How a Venture Capitalist Looks at Hedge Funds 36
From Concept to the Real Deal 38
Searching for That Rare Gem 41
Everybody Has a Story 46
Some Things Shouldn’t Be Hedged 50
The Hedge Fund as a Business 52
Summary 56
Chapter 4 Where Are the Customers’ Yachts? 59
How Much Profi t Is There Really? 60
Investors Jump In 63
Fees on Top of More Fees 65
Drilling Down by Strategy 69
How to Become Richer Than Your Clients 74
Summary 77
Chapter 5 2008—The Year Hedge Funds Broke Their Promise to Investors 79
Financial Crisis, 1987 Version 80
How 2008 Redefi ned Risk 82
The Hedge Fund as Hotel California 85
Timing and Tragedy 93
In 2008, Down Was a Long Way 97
Summary 98
Chapter 6 The Unseen Costs of Admission 99
How Some Investors Pay for Others 101
My Mid-Market or Yours? 104
The Benefi ts of Keen Eyesight 107
Show Me My Money 111
Summary 115
Chapter 7 The Hidden Costs of Being Partners 117
Limited Partners, Limited Rights 118
Friends with no Benefi ts 120
Watching the Legal Costs 125
Summary 128
Chapter 8 Hedge Fund Fraud 129
More Crooks Than You Think 130
Madoff 133
Know Your Audience 134
Accounting Arbitrage 101 136
Checking the Background Check 138
Politically Connected and Crooked? 140
Paying Your Bills with Their Money 141
Why It’s Hard to Invest in Russia 143
After Hours Due Diligence 145
Summary 146
Chapter 9 Why Less Can Be More with Hedge Funds 149
There Are Still Winners 151
Avoid the Crowds 154
Why Size Matters 158
Where Will They Invest All This Money? 166
Summary 168
Afterword 171
Bibliography 177
About the Author 181
Index 183
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