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The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be Trueby Simon Lack
Synopses & Reviews
Praise for The HEDGE FUND MIRAGE
"We all know of hedge funds that vaulted to the sky, only to crash to earth. Simon Lack demonstrates, astonishingly, that the industry itself has repeated that dismal story of early promise, followed by an infusion of funds, followed by a numbing reversion to the mean. The upshot: for the average investor in the average fund, hedge funds have proved a false hope. And Lack has the numbers to prove it. Written by a canny industry insider, The Hedge Fund Mirage takes a fresh look at an industry that is too often viewed in reverent and adoring terms. Not least, Lack draws attention to the fact that the average hedge fund manager—in terms of their sky-high fees—has done far better than the average investor. This book will give investors the tools to evaluate whether their own fund is up to the mark."
—Roger Lowenstein, author, When Genius Failed
"The Hedge Fund Mirage is required reading for hedge fund investors. Mr. Lack's wealth of experience combined with his deep commitment to candid, even-handed dialogue provides a truly unique and important perspective on the hedge fund industry. In a world where published hedge fund research typically relies on unreliable, difficult to validate data, or second-hand accounts culled from public media, Mr. Lack has created a highly entertaining book with firsthand, insightful analysis that will serve to rapidly move the reader up the learning curve."
—Andrew Weisman, Chief Executive Officer, WR Platform Advisors LP
"Simon Lack makes a critically important distinction between time-weighted returns and dollar-weighted returns generally, and specifically how they can differ significantly in the hedge fund space. Based on his extensive experience, the book is a treasure of subtle—as well as not-so-subtle—cautions, considerations, and advice which every hedge fund investor should comprehend."
—Michael Hennessy, cofounder, Morgan Creek Capital Management
"Controversial and enlightening, Simon Lack delivers the real deal on alternative asset investing. Caveat emptor to those who fail to read this, whether you're a hedge fund manager, private investor, or journalist."
—Lesley Daniels Webster, Principal, Daniels Webster Capital Advisors, retired EVP, JPMorgan Chase
"Simon's wisdom, humor, and authoritative analysis jump boldly off of every page. Anyone who has ever invested in a hedge fund or is thinking about it should read this book."
—John Trammell, hedge fund investor, CEO, Cadogan Management
Sure, hedge funds have produced some of the greatest fortunes in recent years, but the shocking reality is that investors would have made more putting their money into treasury bills instead. And while hedge funds have proved to be serious moneymakers for those that manage them, investors themselves rarely reap the benefits. In The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True, hedge fund expert Simon Lack blows the lid off the secret world of this class of investments, teaching you everything you need to know to maximize your own returns.
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.
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.
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.
About the Author
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
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
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
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
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
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
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
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
Chapter 8 Hedge Fund Fraud 129
More Crooks Than You Think 130
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
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
About the Author 181
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