Postscript to Part Two: Are Hedge Fund Returns a Mirage?
As this book was entering its copyediting phase, I came across the following startling quote:
If all the money that’s ever been invested in hedge funds had been put in treasury bills instead, the results would have been twice as good.
—Simon Lack
This opening line from Simon Lack’s book, The Hedge Fund Mirage (John Wiley & Sons, 2012), may well be the most damning sentence ever written or uttered about hedge fund investment. But is it true? Well, it’s a true statement about the wrong question. The question that Lack chose to focus on was: How many total dollars have investors earned in hedge funds? The appropriate question, however, is: How much would an individual investor have earned assuming hedge fund index returns?1 Measuring the performance of hedge funds based on total dollars earned, as Lack does, is deeply flawed for two reasons:
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