Burton “Random Walk” Malkiel is getting himself into a tussle these days, as reported by today’s WSJ. He has a working paper out where he argues that current hedge fund indices overstate performance considerably:
…we examine the claims of the managers of “funds of funds” that they can form portfolios of “the best” hedge funds and that such funds provide useful instruments for individual investors. We conclude that hedge funds are far riskier and provide much lower returns than is commonly supposed.
Ouch. As you might expect, folks in the hedge fund industry — and hedge fund index industry — are not impressed.