The Investment Scientist

The Massacre of Hedge Fund Business

Posted on: October 3, 2016

Hedgefund.jpgI took the sensationalist title from a CNBC article I read yesterday. The articles talks about, and I quote, ” … hedge funds, as a category, is experiencing the worst quarter of outflows since the bottom of the financial crisis … there were an avalanche of stories about the industry’s nearly systematic underperforming.”

Readers of my newsletter and blog, The Investment Scientist,  can thank me later for warning them years ago.

On April 28, 2011, I published “A Balanced Portfolio to Avoid (II): Hedge Funds Don’t Deliver Outstanding Returns.” Let me quote my former self: “Hedge funds are often peddled as an unique asset class that are uncorrelated with the market. In reality, hedge funds are as much an asset class as Las Vegas is.” The unspoken message is: you should expect to lose money.

On August 15, 2012, I published “Why You should Avoid Hedge Funds.” I wrote that article after I read the book by former hedge fund industry insider Simon Lack, “The Hedge Fund Mirage.”  I summarized the book in one sentence for my readers: “Between 1998 and 2010, hedge fund fees totaled $440 billion vs. $9 billion profits for investors.” Note that hedge fund performance reporting is voluntary – unprofitable hedge funds need not report – so even the $9 billion profit figure should be taken with a grain of salt.

On June 13, 2013, I was aghast at SEC Chairwoman Mary Jo White’s proposal to allow hedge funds to market to the public. That day, I wrote a sarcastic piece “Why Allowing Hedge Funds to Market to The Public is Such A Good Idea.” In the concluding paragraph I wrote: “What’s unfair about the existing hedge fund rule is that only the top 1% get that bragging right. The rest of us don’t even know such a wonderful opportunity exists to transfer our puny wealth to the hedge fund managers who are really the top 0.1%.”

I hope you enjoy my newsletter and blog as much as I enjoy writing them. I hope somewhere out there a reader or two did not buy into the hedge fund hype because of my writings. That would make all the midnight oil I have burned worth it!

2 Responses to "The Massacre of Hedge Fund Business"

I not only avoid hedge funds as well as expensive actively managed funds, but I also tell the same to my friends who invest. I point people to two sources of clear and easily understandable information on investing- Allan Roth and you. Thank you for what you do.

Thanks Jerry!

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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