The truth about hedge funds

http://www.marketwatch.com/story/why-im-not-investing-in-hedge-funds-2011-04-06?link=home_carousel

Let's fling a little raw meat into the ring ...


http://www.nakedcapitalism.com/2008/03/are-hedge-funds-scam.html


http://www.businessinsider.com/hedge-funds-have-been-a-scam-for-the-past-twenty-years-2010-9

It all sounds rather like a casino... I wonder if my odds of doubling my money would be higher throwing money on red on the wheel in Macau?

I thought people who buy into hedge funds take all the risk in bad years and another 2% more down the drain (traders get 2% for their time and effort) and just 78% of the rewards in a good year.


So yes HF are not like a casino one bit, between the two opposing sides in a trade they strip each punter an average of 12% (ie 20+2+2)/2. So I guess we have just calculated the risk - reward. Not too tough it seems.


Macau looks almost genteel at under 6%.

no funds charge those type of fees anymore.

currently 1-1.5% of AUM and 15-18% of profit (if there's profit) are market and those levels are going down. but people focus so much on this fee piece they forget the big picture.


I myself do not invest in hedge funds nor, do I work for one. But they are not so different from other stuff like mutual funds/etfs, fofs, long-term mpf-esque type stuff... all these things charge you through one method or another. they are designed for the investor who's too lazy to pick their own investments, and sorry to say, you get what you pay for often. "pay" referring to both $ terms and real blood and sweat effort.


Frankly, in 1 year if your investment only loses or gains only to the point 1-2% difference is actually notable, you've pretty much wasted your time imo. Even more so here, because if you are the type of guy who is worrying about 1-2%, don't go for hedge funds. buy a treasury or something. hedge funds are for people thinking 10+% p.a. they are recognized to be "high risk"... why you would do something high risk when 1% makes you sweat... i don't know. step back, take a deep breath, think about it a bit.


any investment should be done with proper homework. its not hard to surf the net and find a vast majority of HFs do not perform these days. on the the flipside, there are some names out there who do perform well with a track record, frankly to the point that individual folks like me or you can't even get a piece unless we board an institutional investor bus.


end of day, for the investor, HFs come down to being another choice. no one can force your money in. frankly, far as I am concerned, anyone whos reckless enough to throw money into something they don't fully understand just because they see "20% per year" on a piece of paper deserves to be burned. that's your own greed ruining you. you think a fund sucks? let em play, let em be burned. someone else out there will take the money off their hands.

I was reading an excellent article on this topic - and for the life of me I can't remember the source...


But it compared 40 top hedge funds performance over a long period (I think it was 10 years)... against an index fund...


Some of the hedge funds had gone out of business - but of those that were operating all of these managed funds were totally blown away by the NETT returns on index funds...


The big problem with managed funds is that they charge crazy fees - and they require a great deal of luck ... as the article points out you may be fortunate to drop your money into a fund that does well for a certain period... but as the fine print says... past performance is not an indication of future performance...

agreed : past performance is not an indication of future performance.

Came across another article...


20 Ways You Can Get Ripped Off


Many mutual funds: The rip-off: Thousands of actively managed mutual funds (which employ stock pickers who try to beat the market rather than simply match its overall returns) charge fees of 1 percent or higher. Yet consider that less than 40 percent of actively managed funds that invest in large companies outperform the S&P 500 Index. Assuming an investment of $10,000 per year for 40 years, and an average annual return of 7 percent, a fund with a 1.5 percent annual fee compared to one with a 0.25 percent load will cost an extra $580,000. That's a yacht or a summer house.



Ed's Note - so you have a less than 1 in 2 chance of beating the index... and you can't expect a fund that beat the market this year to do so next year (see rule of past performance...)...


Tracker Fund anyone...



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