The Hedge Fund Mirage by Simon Lack - Essay Example

Book Report: The Hedge Fund Mirage Introduction In the book, The Hedge Fund Mirage, Simon Lack brings into account some of the facades that surround most of the hedge fund organizations that are present in society. It also takes into account how those that manage these funds rake in profit from their investors, while reaping of profit on the investor’s part is just a rarity. It is true that these hedge funds could be moneymaking machines at certain times, but they are turning out to be financial traps that seem to be ensnaring even the most of wittiest individuals (Lack 36). The book divulges information to the reader that may make all the difference between losing one’s money, and protecting it through wise investment options. It is through this book that various aspects of the hedge fund scheme are being addressed, and how investors should go about resolving the imbalance created by hedge fund managers. It is true that there is a lot of money to be made from hedge funds, because the success of most hedge funds proves that opportunities are present (Lack 42). In an aggressive, fast-changing business environment, individuals are always coming up with ways in which they can benefit from each other. However, the vulnerability of some individuals, especially with regards to finances, is being capitalized on by individuals who are willing to make quick cash from susceptible folks. It is in light of this that the author sought to address some of the aspects that surround hedge funds. The author describes how to tackle the menace that arises from investment managers, and how to become stronger when opportunities are likely to occur once an individual chooses to invest (Lack 46). Summary of the book According to Simon Lack, investors need to be cautious of the risk hedge funds pose on their unsuspecting nature. It is true that hedge funds can be a lucrative source of capital, but the manner in which people are losing their money is not worth ignoring. First and foremost, the charges required to invest in a hedge fund, according to the author, tend to always be ridiculous. It is the author’s belief that half the money invested by investors could make more returns had they put invested in treasury bills (Lack 51). All these assumptions point or lead to one conclusion that; hedge funds are in business for their own interest, and not those of their investors. This bold statement makes one wonder of all that is currently happening to the invested money that happens to find its way into hedge funds. This is also described in the book when the author insinuates that investors lose almost 25% of their invested money to the hedge fund industry. The superior rate of returns, often hyped by hedge funds, is usually a ploy to have people invest in something that may not necessarily wield high returns (Lack 53). The author believes that even the traditional methods of investment have better luck in having better/higher returns as compared to the glorified schemes of hedge funds. The numbers, as the book suggests, do not add up or are not consistent with what is actually happening in these organizations. It is this claim that leads to the casting of doubt on the whole hedge fund charade. The controversial manner in which the author divulges information about the hedge fund industry brings to light some of the common mistakes people make, and why it is vital to be open-minded when it comes to deals that are too good to be true. Strengths and weaknesses of the book The manner in which the author divulges this information is done in a simple, much easy to understand language. Simple examples have been used to describe scenarios in which individuals are often in, and how they are susceptible to manipulation once the promises of exceptional returns are introduced. No financial or mathematical complexities have been used, so it is easy for even the not so avid reader to comprehend. Moreover, the anecdotes that the author knits into the book form a basis for a relaxed atmosphere where the reader can make light of situations that, many at times, may seem dire. This assists readers, and would-be investors, to identify some of the crucial and intricate details that they need to have before investing in certain hedge funds. These details are not meant to be ignored by any party interested in this book. The details provided are also meant as advice from a party that is familiar with the inside functions of a financial system, and is now willing to share this information so as to benefit others. In my opinion, the book failed to mention some important facts or issues associated with the moneymaking industry; that is hedge funds and all other businesses linked to its mode of operation. One of the many things it failed to mention was the performance of some of the hedge funds operations, and the value accredited to some of its investors. It is next to impossible for any other business, for example; one that runs an incubator fund, to recuse itself from some of the assumptions based on this book. It seems that this might be ironical, if not hypocritical, for the author to do this yet in the final pages of the book, describes some of the businesses he might have conducted, or is still conducting. It is my belief that the author’s story would have been more compelling had he been outright his own intentions with the incubator funds as much as he applied effort to shed light on his hedge funds counterparts. Conclusions The smaller number of hedge funds in the past made it easier for would-be investors to monitor and evaluate the operations of all organizations (Lack 86). As times change, it is becoming more difficult to monitor these operations as new organizations spring up every day. The mode of operation is also changing. This is as most organizations try and fit in the new aspects of different markets into their repertoire, so as to allow them to attract more investors and clients for business. A careful look into the wealth created by hedge funds might lead to the appalling conclusion that they do that for their own selfish ends, and not their investors. However, it may not be fair to put all the blame on these organizations because quite a number of parties are equally to blame. An example in this case would be the Federal Reserve. The holding interest of the reserve is low and tends to have a slow stimulation effect that leads to the low returns. This then makes it even more difficult for any party to have the proper returns expected, even with high investment. The charge placed on investors by hedge funds make it difficult for countless people to realize their returns, especially if the organizations are in it for their own interests. They charge too much for little return, and this should be caution enough for any future investors. In the fast-growing business world, it is imperative for people to be smart for the sake of their future. Investment should not be done without proper consultation with the right people and at the right amount. As Simon Lack put it, it is crucial for investors to look at their investment options and find out what their investment organizations are all about, this includes; the management, the employees, and even the track record of the organization (Lack 91). Demanding for transparency may be a vital way in which all players in the game might have an equal playing field, especially when it comes down to the returns on investment. This is what hedge funds promise, and this is what they must deliver. Work Cited Lack, Simon A. The Hedge Fund Mirage: The Illusion of Big Money and why It’s Too Good to be True. New York: John Wiley & Sons, 2012. Print. Read More