Jonathan Swift, one of the great satirists of all time, published a disturbing and provocative essay, 'A Modest Proposal,' in 1729 suggesting a unique and terrible solution to Ireland's famine crisis. In his piece, Swift recommended cannibalism as a wholesale solution to Ireland's struggles with overpopulation, starvation, and a stagnant economy. Swift's rationale for 'A Modest Proposal' was based largely upon the following:

• He suggested that unwanted and orphan babies could be "repurposed" as a food supply.
• His rationale included statistics of his time on overpopulation, lack of adequate food supply, and the cost of meat.
• He summarized that, while uncomfortable, the benefits of his proposal outweighed the downside.

If one takes a comparative view on the current state of the hedge fund society, it might jumpstart a conversation about difficult changes needed for a healthier investment sector.

Debunking the law of averages

Much has been written over the past several years dissecting reasons for the disappointing results of the hedge fund industry overall. Critics decry mediocre returns, the tendency to lag the overall market, and steep fees. What most critics fail to point out, however, is the lack of usefulness in focusing on aggregate hedge fund performance. With hedge funds currently numbering somewhere north of 14,000, the array of investment choices a buyer of such funds might make is staggering. But the vast majority of these hedge funds have, for reasons good or bad, failed to live up to their hype.

Probability theory, which the'law of averages' is based upon, is often misused as a statistic in drawing conclusions about hedge fund performance.With such a bloated universe, one must take a closer look at the individual fund components of this mix. For contained within t......................

To view our full article please login

This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.