Hedge funds and performance

Given all the attention hedge funds have been getting over the past few years, it is good to be reminded occasionally that when measured against a proper benchmark most hedge funds do NOT outperform. The following is from Ramit Sethi writing at Iwillteachyoutoberich.

I Will Teach You To Be Rich » Behind-the-scenes New Yorker article on hedge funds reveals they aren’t so sexy:

"...people with access to hedge funds — even they may be getting substandard returns in exchange for their participation in hedge funds. This is just another example of investor psychology and the importance of realizing that people are not always rational with their investments."

Sethi also cites Malkiel and Saha:

"After examining results of now defunct firms, Malkiel and Saha found that between 1996 and 2003 hedge funds made an average return of 9.32 per cent, significantly less than the 13.74-per-cent average return of funds included in the published databases."

Defnitely a good reminder and definitely not what you would expect if you just listened to popular press.