Alternative Investment Management Association
06 August 2012
The Alternative Investment Management Association (AIMA), the global hedge fund industry association, has published a comprehensive rebuttal of ‘The Hedge Fund Mirage’, a polemic critical of the industry.
The paper, “Methodological, mathematical and factual errors in ‘The Hedge Fund Mirage’”, was written in conjunction with AIMA’s Research Committee, which features leading academics and analysts.
“Many of us in the industry looked at the arguments in the book with initial interest, and then growing scepticism. Many of the most sensational claims appeared not to be backed up by any figures. Where there were figures, the methodology was flawed. We noticed that no-one praising the book appeared to have actually checked the numbers behind it. We began to wonder if ‘The Hedge Fund Mirage’ was itself an illusion,” said AIMA CEO Andrew Baker.
AIMA pointed to the following errors in ‘The Hedge Fund Mirage’:
AIMA CEO Andrew Baker said: “Hedge fund returns have historically been impressive, out-performing equities, bonds and commodities. The book invents a variety of ingenious but highly misleading techniques to lower these returns, including the use of dollar-weighting against best practice, arbitrarily taking 3% off returns (because of alleged ‘bias’ even though academics say the various biases cancel each other out), removing another 2% by claiming that only returns above U.S. Treasuries are ‘real’, and using one of the worst-performing indices. This is admirable in terms of chutzpah, but mistaken in methodological, mathematical, and factual terms.
“It is clear that the main claims made in ‘The Hedge Fund Mirage’ do not stand up to rigorous examination. But we should stress that although AIMA is the global hedge fund industry association and obviously represents the interests of that industry, we are not of the view that the industry should not be criticised. There are many legitimate grounds on which to do so, and indeed AIMA itself has worked since its inception in 1990 to raise industry standards through its sound practices work.”
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For media enquiries, please contact Christen Thomson, AIMA’s Director of External Affairs.
Tel: +44 (0)20 7822 8380; Email: firstname.lastname@example.org
Notes to editors
To download “Methodological, mathematical and factual errors in ‘The Hedge Fund Mirage’”, click here:
 Investors put $1.24 trillion into hedge funds over the period 1998-2011 and have $1.78 trillion to show for it, a 44% return. By contrast, investing $1.24 trillion in U.S. Treasury bills over the same period would have produced $1.52 trillion, a 23% return.
 "GIPS® Guidance Statement on Calculation Methodology" (CFA Institute, 2006)
 The example is of an investor who puts $1 million in a fund that has a +50% return in a single year. The investor adds another $1 million in year two, when the fund is down 40%. Net, the investor has lost 25% of his money, and the fund will report a compound average annual growth rate of -5.13%. But the book wrongly says that the fund will report +5.13%.
As the global hedge fund association, the Alternative Investment Management Association (AIMA) has over 1,300 corporate members (with over 6,000 individual contacts) worldwide, based in over 50 countries. Members include hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting firms, investors, fund administrators and independent fund directors. They all benefit from AIMA’s active influence in policy development, its leadership in industry initiatives, including education and sound practice manuals and its excellent reputation with regulators worldwide.
AIMA is a dynamic organisation that reflects its members’ interests and provides them with a vibrant global network. AIMA is committed to developing industry skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the industry’s first and only specialised educational standard for alternative investment specialists. For further information, please visit AIMA’s website, www.aima.org.