Last week, I finally got around to reading The Hedge Fund Mirage. It was published in 2012, so I’m only two years behind, and the book’s main message is just as valid today as it was when it was written. Namely, the average hedge fund is the last place you should even think about putting your money. The very first sentence of the book makes this point quite persuasively:
“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.”
Ouch. The book’s author, Simon Lack, goes on to explain this sorry record by proving and reproving an obvious yet little-acknowledged law of money management. I discuss it in my book, as well (available now for pre-order!): asset size is the enemy of return. Hedge funds produce much better investment results when they manage a relatively small amount of money, but those returns shrink toward mediocrity (or worse) as a fund’s assets increase.
Put simply: the more capital you’ve got under management, the poorer your investors are probably going to be.