Damsel in Distressed by Dominique Mielle

Author:Dominique Mielle [Mielle, Dominique]
Language: eng
Format: epub
ISBN: 9781642939736
Publisher: Post Hill Press
Published: 2021-06-25T14:27:06+00:00

Chapter 8

Scrappy No More

Yes, we made a lot of money. But we were delivering what we had promised, a product that beat the market consistently and uncorrelated returns that could not be obtained elsewhere. We earned it.

Or did we?

At the time, I did not fret over the fact that hedge funds made the managers rich but not so much the investors. Now, from the outside, I appreciate that there would be something rather off-putting, slightly unsavory, about a service of which value accrues to the seller rather than the buyer. There is enough data out there to calculate the annual profits produced by the hedge fund industry as a whole. In other words, aggregating all hedge funds into one imaginary giant firm, one can calculate how much profit it cumulatively produced over the years and, of the latter, the amount it retained as management and incentive fees versus the amount it distributed to investors as earned profits. The idea is not mine; I read it in the excellent book The Hedge Fund Mirage by Simon Lack and it got me calculating. I obtained slightly different numbers than Mr. Lack due to a different data source and because he stops his computation in 2010, while I take mine up to 2017. The conclusion is the same, nonetheless. From 1998 to 2017, hedge funds produced about $2 trillion of profit, of which they kept half. I am not teasing; half of the profit was never to be seen again by investors. Let them eat cake. That there isn’t a Robespierre out there demanding managers’ heads on a spike is astounding.

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