The 10 Biggest Myths About the Hedge Fund Industry
First off, I am not anti-hedge fund nor do I want to cast a negative light on any investment vehicle. However, to inform people that not everything they believe to be true about hedge funds is, true. Although they don't apply to all funds, these are the top ten myths for 'average' hedge funds.
- Hedge funds are absolute-return vehicles.
- Hedge funds are nimble market-timers.
- Shorting generates alpha.
- Today’s stars will be tomorrow’s also.
- Hedge funds shine in volatile markets.
- Replication doesn’t work.
- Only net-of-fee returns matter.
- Stock selection drives performance.
- Hedge funds are long value stocks and short growth.
- Fee structure of 2/20 aligns incentives.
What are your thoughts about these myths? Would you want to challenge any of them? Some seem to be debatable whereas others are spot on.
Mostly true...
I don't think most people believe most of these. Some are only applicable to equity funds which aren't the majority of hedge funds any more. I'm not sure what #7 means. All else being equal, to the end investor what else matters?
Hedge fund is just a compensation scheme in the end. Strategies and managers vary so much that it's hard to make generalizations.
periods after a numbered list...
I'm scratching my head. Maybe these are myths to the average american? Don't think I've ever heard a reasonably educated investor lay claim to most of these. Maybe I'm just hanging out with the wrong (right?) people
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