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Hedge Fund Investments. A Valuable Addition to Your Portfolio?

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(1)

Hedge Fund Investments

A Valuable Addition to Your Portfolio?

(2)

“If everybody was doing active management with hedge funds,

and you put together all the hedge funds, what would you

get? Treasury bills.”

“Bill Sharpe talks About Asset Allocation, Pricing Theory and Hedge Funds”

Bloomberg Wealth Manager November 2004 p. 108

William F. Sharpe

Stanco 25 Professor of Finance, Emeritus Graduate School of Business, Stanford University

Nobel laureate 1990

(3)

“We conclude that hedge funds are far riskier and provide much lower returns than is commonly supposed.”

Burton G. Malkiel and Atanu Saha, “Hedge Funds: Risk and Return”

Financial Analysts Journal November/December 2005

Burton G. Malkiel

Chemical Bank Chairman’s Professor of Economics Princeton University

(4)

“Our research has shown that in at least eighty per cent of cases the after-fee alpha for hedge funds is negative…I’m not saying they don’t have skill; I’m just

saying they don’t have enough skill to make up for two and twenty.”

John Cassidy, “Hedge Clipping” New Yorker July 2, 2007

Harry M. Kat

Professor of Risk Management

Director of Alternative investment Research Centre Cass School of Business

City University, London

(5)

“The risks facing hedge funds are non- linear and more complex than those facing traditional asset classes…such

risk are currently not widely appreciated or well understood.”

Nicholas Chan, Mila Getmansky, Shane M. Haas, and Andrew W. Lo,

“Do Hedge Funds Increase Systemic Risk?”

Economic Review Federal Reserve Bank of Atlanta Fourth Quarter 2006

Andrew W. Lo

Harris and Harris Group Professor

Director of MIT Financial Engineering Laboratory MIT Sloan School of Management

(6)

David F. Swensen

Chief Investment Officer, Yale University

“On top of the enormous difficulties of identifying a group of genuinely skilled investment managers and overcoming the obstacles of extremely rich fee arrangements investors confront a

fundamental misalignment of interests created by the option-like payoff embedded in most hedge fund fee arrangements.

Investors in hedge funds find generating risk-adjusted excess returns nearly an impossible task.”

David F. Swensen, Unconventional Success: A Fundamental Approach to Personal Investment © 2005 p. 133

(7)

“The indications are that the entire equity positions of the funds have been wiped out.”

Wall Street Journal October 30, 1997

(8)

“The fund had racked up returns of more than 40% per year, with no

losing stretches, no volatility, seemingly no risk at all.”

-- Roger Lowenstein, When Genius Failed © 2000 p.xix

(9)

“It got too big, too exposed to withdrawals from hot-money investors and too leveraged.”

Wall Street Journal April 3, 2000

(10)

“One of the biggest hedge-fund managers in the bond business has told investors that it had losses of more than 50% in recent months...”

Wall Street Journal October 21, 2002

(11)

Business Week October 9, 2002

“The hit to Lipper’s $4 billion empire was so great

it would eventually force the 16-year old firm under.”

(12)

Wall Street Journal January 8, 2003

“Gotham’s sudden change of fortune, and the still-murky cause of its unraveling, highlight yet again the perils of hedge fund investing.”

(13)

“It rose 18% in 2001, and then rocketed 76% in 2002.”

Wall Street Journal January 24, 2003

(14)

Business Week May 10, 2004

(15)

“It only takes one bad year to put most hedge funds in peril.”

Wall Street Journal July 15, 2004

(16)

“..losses of nearly 25% this year on mistaken bets on both U.S.

and European stocks.”

Wall Street Journal June 21, 2005

(17)

Wall Street Journal September 30, 2005

(18)

“About 500 investors fear they have lost everything.”

– Ian McDonald, “Troubles at Atlanta Hedge Fund Snare Doctors, Football Players”

Wall Street Journal March 9, 2006

Wall Street Journal February 18, 2006

(19)

“Lawsuits filed in recent months in New York state court….”

Wall Street Journal August 22, 2006

(20)

“Ritchie is asking investors to curtail their withdrawals, worried about forced selling and other potential problems.”

Wall Street Journal August 31, 2006

(21)

Wall Street Journal September 12, 2006

(22)

“The firm’s largest investment fund is down

24% in the past year.”

Wall Street Journal May 29, 2007

(23)

“Basis had secured a solid reputation, helped by top ratings from fund assessment

agencies, including Standard

& Poor’s.”

Financial Times August 30, 2007

(24)

“Mr. Hunter lost roughly $5 billion in about a week.”

Wall Street Journal September 19, 2007

(25)

“Over the past 12 months the fund has lost 37% of its value.”

Wall Street Journal September 15, 2007

(26)

“The funds’ collapse wiped out $1.6 billion in

investor equity…”

Business Week October 22, 2007

(27)

“In early July, Sowood Capital Management LP had been grinding out steady, if unspectacular, gains…By the end of July, Sowood was out of business. Its investors lost more than half their money.”

Wall Street Journal October 27, 2007

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