The Hedge Fund Mirage

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.

The dismal truth about hedge funds and how investors can get agreater share of the profitsShocking but true: if all the money that's ever been invested inhedge funds had been in treasury bills, the results would have beentwice as good.Although hedge fund managers have earned some great fortunesinvestors as a group have done quite poorly, particularly in recentyears. Plagued by high fees, complex legal structures, poordisclosure, and return chasing, investors confront surprisinglymeager results. Drawing on an insider's view of industry growthduring the 1990s, a time when hedge fund investors did well in partbecause there were relatively few of them, The Hedge FundMirage chronicles the early days of hedge fund investing beforeinstitutions got into the game and goes on to describe the seedingbusiness, a specialized area in which investors provide venturecapital-type funding to promising but undiscovered hedge funds.Today's investors need to do better, and this book highlights themany subtle and not-so-subtle ways that the returns and risks arebiased in favor of the hedge fund manager, and how investors andallocators can redress the imbalance.* The surprising frequency of fraud, highlighted with severalexamples that the author was able to avoid through solid duediligence, industry contacts, and some luck* Why new and emerging hedge fund managers are where generallybetter returns are to be found, because most capital invested issteered towards apparently safer but less profitable largeestablished funds rather than smaller managers that evoke the moreprofitable 1990sHedge fund investors have had it hard in recent years, butThe Hedge Fund Mirage is here to change that, by turning thetables on conventional wisdom and putting the hedge fund investorback on top.

Introduction xiAcknowledgments xvChapter 1 The Truth about Hedge Fund Returns 1How to Look at Returns 2Digging into the Numbers 3The Investor's View of Returns 6How the Hedge Fund Industry Grew 10The Only Thing That Counts Is Total Profits 13Hedge Funds Are not Mutual Funds 14Summary 16Chapter 2 The Golden Age of Hedge Funds 19Hedge Funds as Clients 20Building a Hedge Fund Portfolio 22The Interview Is the Investment Research 24Long Term Capital Management 27Too Many Bank Mergers 30Summary 33Chapter 3 The Seeding Business 35How a Venture Capitalist Looks at Hedge Funds 36From Concept to the Real Deal 38Searching for That Rare Gem 41Everybody Has a Story 46Some Things Shouldn't Be Hedged 50The Hedge Fund as a Business 52Summary 56Chapter 4 Where Are the Customers' Yachts? 59How Much Profit Is There Really? 60Investors Jump In 63Fees on Top of More Fees 65Drilling Down by Strategy 69How to Become Richer Than Your Clients 74Summary 77Chapter 5 2008--The Year Hedge Funds Broke Their Promise to Investors 79Financial Crisis, 1987 Version 80How 2008 Redefined Risk 82The Hedge Fund as Hotel California 85Timing and Tragedy 93In 2008, Down Was a Long Way 97Summary 98Chapter 6 The Unseen Costs of Admission 99How Some Investors Pay for Others 101My Mid-Market or Yours? 104The Benefits of Keen Eyesight 107Show Me My Money 111Summary 115Chapter 7 The Hidden Costs of Being Partners 117Limited Partners, Limited Rights 118Friends with no Benefits 120Watching the Legal Costs 125Summary 128Chapter 8 Hedge Fund Fraud 129More Crooks Than You Think 130Madoff 133Know Your Audience 134Accounting Arbitrage 101 136Checking the Background Check 138Politically Connected and Crooked? 140Paying Your Bills with Their Money 141Why It's Hard to Invest in Russia 143After Hours Due Diligence 145Summary 146Chapter 9 Why Less Can Be More with Hedge Funds 149There Are Still Winners 151Avoid the Crowds 154Why Size Matters 158Where Will They Invest All This Money? 166Summary 168Afterword 171Bibliography 177About the Author 181Index 183