Hedge Funds: A Cautionary Tale

Now that we know hedge funds can lose money, your readers may be interested in the following scenario ("The Market's Revenge," Cover Story, Apr. 18). Assume an investment of $100,000 in a typical hedge fund with a 1% management fee and a 20% incentive fee. The fund's gross profits are 30% for each of the following three years. Then in the fourth year, the fund has a loss of 30%.

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