“One in five hedge fund managers misrepresents their fund
Thursday 5 November 2009
“One in five hedge fund managers misrepresents their fund or its performance to investors during formal due diligence investigations, research from New York University's Stern School of Business suggests says the FT, One in five hedge fund managers found to be misrepresenting facts by Sam Jones, Hedge Fund Correspondent
The research is likely to be a further blow to the reputation of a battered industry, which has faced increasing demands for transparency from investors in the wake of the credit crisis.”
The report from Stern School explains the various misnomers, or perhaps the ability the count correctly, whatever the reason, I was fascinated by the statistics.
Sometime ago I read the Tiger that Isnt. Its about statistics and chance. A good layman’s read in my opinion.
My point is that 1 in 5 hedge fund managers are misrepresenting the facts. The good news is that 4 out of 5 are all OK. Yet, 1 in 5 is not necessary the truth, as the truth is subjective, so it could be 2 out of 5. We don’t know.
Secondly, the problem is not the 1 in 5, but WHICH ONE of the 1 in 5? As an investor how do you know if you end up with the 1 in 5? The Hedge Fund will not have a sign above their door to say "We misrepresent the facts", or " We are the 1 in 5", and if there was any hint of misrepresenting the facts in the past, the Hedge Fund PR machine will do their best job possible of making the future prospects look different from the past.
So how does an investor know which to choose? If you pick the wrong one, how does it impact on you? What are the actual risks?
This is after all the biggest problem for investors, namely finding an investment that delivers over time. If the past is no guide to the future, and, the past is perhaps misrepresented as according to Sterns, then investors have a difficult job.
In terms of looking at the past retunrs,I notice also that the much admired David Swensen, CIO of the Yale endowment lost 28.8%, yet a 60/40 portfolio of equities and bonds over the same period would have fallen by 13.5%.
Picking winners in advance is a mugs game and investors should really look no further, for the core of their portfolio to boring portfolios, preferably passive based and cheap to run.
...And if you do want some spice to your portfolio, only do so around the edges not the core, and for spicy investments, be prepared to accept loss as well as the hope for larger gains!
posted by Murray Round Wealth Management @ 14:07,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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