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Neal Berger This article was authored by Neal Berger, of Eagle’s View Capital Management, a fund of hedge funds house located in New York.

Within this commentary, we’d like to broadly address an issue that few within the hedge fund industry want to tackle head-on, or, even acknowledge for that matter. Simply put, the equity market in the US as measured by the S&P or NASDAQ is up more than +15% YTD while the average hedge fund languishes at or near +3% for 2012. In addition, hedge funds underperformed last year as well, with the average hedge fund down more than -5% while the equity markets rose modestly.

What is causing this recent massive underperformance by hedge funds versus equities? We have always believed that the majority of the mainstream strategies within the hedge fund industry are largely correlated to the overall direction of equities. As such, we have been pondering an answer to this unusual disconnect of recent times. Are hedge funds 'finding religion’ and consciously attempting to become less correlated, at least in magnitude, to equity market moves? We think not. Rather, we put forward our hypothesis of this unusual phenomena.

In effect, global central banks have become the largest hedge funds in the world. Their activity in the market dwarfs the activity of the largest privately held hedge funds by a substantial magnitude. One differentiating and crucial factor is that these large "publ......................

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