Swedroe: Even Stars Knock Hedge Funds

August 27, 2014

And in an article appearing in The Economist, Swensen had this to say about the fund of hedge funds:

“Fund of [hedge] funds are a cancer on the institutional-investor world. They facilitate the flow of ignorant capital.”

Stephen Brown, a professor at NYU’s Stern School of Business, has published numerous research papers on the hedge fund industry. He told BusinessWeek:

“Half of [ex-mutual fund managers] that become hedge fund managers and survive the first six months are dead two years later.”

Next up is one of my personal favorites. It comes from Professor of Finance and Nobel Laureate Eugene Fama:

“If you want to invest in something (hedge funds) where they steal your money and don’t tell you what they’re doing, be my guest.”

And finally, we have these words of caution from Gary Weiss, author of “Wall Street Versus America”:

“Hedge funds are the only component of Wall Street that is built pretty much entirely upon myth. Few areas of financial endeavor have been a subject of so many hoary myths, moronic half-truths, goofy speculation, once-true falsehoods, and knucklehead fantasies.

Weiss also warned:

“Usually the financial press forgets to mention that the superstar investors tended to make their biggest bucks when they were managing small sums of money. Some of the biggest names in the business liquidated or wound down their funds when their assets swelled beyond reasonable size, the odds caught up with them, and their performance turned lousy.”

Weiss addressed some of the things that hedge funds do for you, the investor. He offered this list:

 

 

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