The Shape of Things to Come
The obvious isn’t obvious until it’s obvious.
—Should have come from Yogi Berra but it is really from Anthony Scaramucci
THE HEDGE FUND INDUSTRY doesn’t climb a wall of worry; it climbs a wall of resentment and scorn. For two decades now, people have sought to demystify the mysterious nature of hedge funds. They have asserted that the business does not add any value, awards extreme risk takers, charges ostentatiously high fees, and renders the market unsettled and unstable. Moreover, the media has driven into the skulls of all civilians that hedge funds are baaaad—just plain all baaaaad. Yet there are the true believers—not just the managers themselves and their employees—but also private investors, institutional investors, academics, consultants, and investment officers who beg to differ. It is through a review of hedge fund performance results that they have decided that the industry has merit and value. The obvious is in fact obvious—while there are funds that don’t add value, the industry on the whole does, and will continue to grow as a result.
In a recently published book entitled The Hedge Fund Mirage, my contemporary and professional colleague, Simon Lack, asserts that the industry is a value trap. Based on his experiences and the numerous examples that he provides in the book, Simon argues that there are very few managers who can generate the goods over time due to mean reversion. This is just one of the many examples of this debate ...