Which Boglehead writes for the Economist?

[asset_chaos]

C'mon, fess up. Which boglehead writes for the Economist? There are two articles in the Economist on the failures of hedge funds. One of them has to have been written by a boglehead.

http://www.economist.com/news/leaders/21568740-investors-have-paid-too-much-hedge-fund-expertise-better-focus-low-costs-star
Rich managers, poor clients
Investors have paid too much for hedge-fund expertise. Better to focus on low costs than star fund managers

http://www.economist.com/news/finance-and-economics/21568741-hedge-funds-have-had-another-lousy-year-cap-disappointing-decade-going
Going nowhere fast
Hedge funds have had another lousy year, to cap a disappointing decade

[Taylor Larimore]

Guy:

Thank you for the Economist articles. Very interesting and informative.

Unfortunately, this sentence is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%

Bogleheads need to understand that all data bases for hedge funds (unlike mutual funds) depend on volunteer reporting. For this reason underperforming hedge-funds seldom report their returns. The result is that hedge fund data basis grossly overstate the average return of hedge fund performance.

Best wishes.
Taylor

[NYBoglehead]

Unfortunately, this sentence is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%

Definitely baloney (or is it bologna?). Using the 2 and 20 model, the fund would have to have grossed ~23.25% annually in order to provide an investor return of 17%. This simply is not happening.

[empb]

Unfortunately, this sentence that is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%

Definitely baloney (or is it bologna?). Using the 2 and 20 model, the fund would have to have grossed ~23.25% annually in order to provide an investor return of 17%. This simply is not happening.

I think you've misunderstood. That is 17% cumulatively over the referenced decade, no? They wouldn't have much leg to stand on if it was 17% annualized.

[NYBoglehead]

Unfortunately, this sentence that is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%

Definitely baloney (or is it bologna?). Using the 2 and 20 model, the fund would have to have grossed ~23.25% annually in order to provide an investor return of 17%. This simply is not happening.

I think you've misunderstood. That is 17% cumulatively over the referenced decade, no? They wouldn't have much leg to stand on if it was 17% annualized.

Ah, my bad. I was piggybacking off Taylor and made an assumption. Thanks for the correction. If that's the case 17% cumulative return over a decade is simply awful.

[asset_chaos]

Bogleheads need to understand that all data bases for hedge funds (unlike mutual funds) depend on volunteer reporting. For this reason underperforming hedge-funds seldom report their returns. The result is that hedge fund data basis grossly overstate the average return of hedge fund performance.

Taylor,

You're quite right. And that makes the reported 17% cumulative return over a decade even worse because it's just an upper bound on what really happened. These hedge funds as a group are such unbelievably bad investments that it bogles the mind (in the bad way) that so-called sophisticated investors and institutions have piled money into these things. As usual, if people could get their mind Bogle-ed (as in following Mr Bogle's investment principles), they'd be so much better off.

And a very merry Christmas to all.

[lloydbraun]

I pointed this article out to my wife a couple of days ago when it appeared online as yet another example of low-cost, passive index funds beating actively managed funds over the long term. There was also a decent Diane Rehm episode on NPR the other day that touched in the importance of low cost index funds in 401Ks and IRAs.

[tfb]

I don't understand the media's attention given to hedge funds. However poor they are, they are just not that relevant to the investing public. Nobody has tried to sell me an investment in hedge funds.

[Call_Me_Op]

17% over a decade is pitiful.

[NYBoglehead]

^You are correct. A lot of attention is placed on how risky hedge funds are, but my response is always "Who cares?" The overwhelming majority of Americans do not meet the criteria to invest in one and shouldn't really care how poorly they perform. I'm happy to allow the uber wealthy to have a monopoly on this poor investment vehicle!!

That said, one thing that does matter to us all is municipal pension funds investing in hedge funds. I am not a public employee but as a NY taxpayer I am not pleased that some of the public employee pension funds have money in hedge funds. This is a drag on the returns and the general public is responsible through taxes to cover the shortfall needed to pay out benefits. Problematic indeed.

[staythecourse]

^You are correct. A lot of attention is placed on how risky hedge funds are, but my response is always "Who cares?" The overwhelming majority of Americans do not meet the criteria to invest in one and shouldn't really care how poorly they perform. I'm happy to allow the uber wealthy to have a monopoly on this poor investment vehicle!!

That said, one thing that does matter to us all is municipal pension funds investing in hedge funds. I am not a public employee but as a NY taxpayer I am not pleased that some of the public employee pension funds have money in hedge funds. This is a drag on the returns and the general public is responsible through taxes to cover the shortfall needed to pay out benefits. Problematic indeed.

Agree 100%. MANY folks are part of hedge funds via their pension plans. Hedge funds have done a GREAT job wining and dining the managers of the plan to get some of their money.

I am still waiting to see some well deserved lawsuits on how irresponsible PUBLIC pension money is invested.

Good luck.

[Alex Frakt]

I don't understand the media's attention given to hedge funds. However poor they are, they are just not that relevant to the investing public. Nobody has tried to sell me an investment in hedge funds.

The media attention is because people love reading about rich people. Especially when they screw up.

But it's not totally irrelevant to much of the investing public. All kinds of stuff that matter to us, from the solvency of public pension funds (and thus state tax rates) to the availability of scholarships to the price of museum admission depends on institutional money that are potential targets for these things.

For example:
http://www.nytimes.com/2012/10/13/busin ... d=all&_r=0

Even more startling, data compiled by the National Association of College and University Business Officers for the 2011 fiscal year (the most recent available) show that large, medium and small endowments all underperformed a simple mix of 60 percent stocks and 40 percent bonds over one-, three- and five-year periods. The 91 percent of endowments with less than $1 billion in assets underperformed in every time period since records have been maintained. Given the weak results being reported this year, that underperformance is likely to be even more pronounced when the fiscal year 2012 results are included.

The impact is significant. Universities depend on returns on their endowments to finance operations, pay faculty and administrative salaries, provide scholarships and pay for building projects.