Do Hedge Funds Deserve All the Criticism?

A recent Morningstar article posed the question, “Will Hedge Funds Ever Recover?” Any hedge fund professional should find the title of this piece, at a minimum, condescending, and at most, downright maddening.

Averages and Aggregates

The financial sector, by nature, relies on numbers…numbers that quantify data. One can be excused for using averages and aggregates, but do they always prove the argument?

For example, worldwide average life expectancy is 70. 5 years, 78.74 years if you live in the United States. How many of us know people in their eighties, nineties? Most of us, to be sure. Conversely, how many of us have lost friends, family members, and colleagues at a much younger age. Again, most of us.

The average IQ in the United States is 98…in Egypt it is 81, yet, who built the pyramids?

In the United States, the average age for losing one’s virginity is 18.4 years. In Malaysia, the average age is 23.7 years. When did you…never mind.

The Morningstar article’s premise is largely based on average/aggregate hedge fund performance data, such as provided by HFR,which reports, by the way, that weighted composite index gains from August stood at 0.67 percent, for the year, 2 percent. Admittedly, not particularly stellar results for either time framebut these are averages! The aggregate performance of thousand of funds, of all sizes, of varied strategies and of various maturities.

Let’s Be Realistic

Few of us fear death simply because we are approaching 79 years of age, few of us even know our own IQ, and fewer still will decide against a hedge fund investment because the average aggregate year-to-date return is 2 percent.

The hedge fund industry is comprised of more than 10,000 firms, some large, some small, some pursuing a long/short strategy, others still are quant funds, macro funds, emerging market funds…the list is almost endless. Large funds tend to perform differently from small ones and certain strategies outperform others. For example, Left Brain Capital Appreciation Fund, a hedge fund, has generated year-to-date gains of 60 percent through August.

The automotive industry has many car manufacturers ranging from Rolls Royce to Bentley, Lamborghini to Jaguar and Yugo to Tata. The shoe industry also has a plethora of manufacturers, Nike to Converse, Bruno Magli to Cole Hahn and Crocs to Vans.

No single automobile is appropriate for every individual, nor is any particular shoe. In the same way, no single hedge fund meets the needs of every investor, nor does the average/aggregate hedge fund, if such a thing even existed.

What about Hedge Fund Jobs

Being discouraged from pursuing a career in the hedge fund industry is understandable, when those aspiring to seek work in this profession read headlines and articles such as the one cited here.

Let not your heart be troubled. Outstanding, high paying jobs are available for applicants from a broad range of backgrounds.

Stand strong for your hopes and ambitions. The hedge fund industry is thirsting for talent. It is a noble enterprise and like all enterprises, has its highs and lows.  Don’t allow a shallow headline deter you from your chosen path.

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