From Forbes: Not long ago it seemed that the “smart money” was invested in hedge funds which generated outsized returns for investors. When broad markets fell by 40% in the crash of 2008 and 2009, hedgies like John Paulson, who bet against mortgage-backed securities, made fortunes. In 2007, Paulson made $3.7 billion. In 2010, he made $5 billion.
Now that the financial crisis has abated, such returns for Paulson and his fellow superstar hedgies appear to be a thing of the past. And, with the recent rash of insider trading prosecutions by the Feds against hedge fund managers, investors must seriously question the value of putting their money with these folks.
The saga of SAC Capital may ultimately show that the only reason hedge funds realized the outside return was through illegal insider trading on confidential information….