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Hedge fund track record?

A skilled hedge fund manager could have 3 bad years in a row whilst a lucky one can put up 3 great years. Long-Term Capital Management was "top" of every search you could run in 1997 but we know how 1998 turned out. Incomplete databases just list many lucky funds and a small number of skilled ones. Many of the best only need to report to their clients. Past performance is a poor indication of future performance. However an investment edge CAN be evaluated in advance. Luck can only be separated from skill by thorough FORWARD LOOKING due diligence.

Unfortunately the main criteria used by many investors are backward looking like PAST returns and "pedigree". This pernicious disease can be summed up as "manager previously worked at xxx, where xxx=any well known successful hedge fund or large investment bank, so therefore must be good". Pedigree is irrelevant. But that is what all but the smartest investors give the most weight to. And why all but the most insightful funds of hedge funds have had poor performance this year despite many truly skilled underlying hedge funds posting great returns.

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