A Bloomberg dispatch quotes Simon Lack, author of The Hedge Fund Mirage:"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."
Other studies have been slightly kinder, indicating long-term performance that lagged the S&P 500 by 50% or so. Certainly last year was one most fund managers are glad to be rid of. The average hedge fund dropped almost 5%. Long/short equity funds lost more than 7%.
Here is the mystery:
If hedge funds do this badly despite a growing number of arrests for insider trading, how badly would they have done without inside information?
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3 comments:
You assume, as the government does, that the insider trading is inherently profitable. I wonder about that.
Also, were the Madoff funds hedge funds themselves, or just funds that some hedge funds invested in? How does that affect the supposed returns of all hedge funds?
Madoff's operation took on the aura of a hedge fund and attracted investments from funds of funds. But as far as I can tell, he was just maintaining brokerage accounts whose holdings became increasingly imaginary.
(And I'm not assuming that insider trading is profitable. But maybe the naughty hedge funds lost less on their insider trades than on other trades.)
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