Global group manages hedge funds and has three hedge funds invested in the stock market of a particular emerging country. These three hedge funds have very different investment strategies. As expected, the 2007 returns on the three funds were quite different. Over the year 2007, an index based on the overall stock market of the emerging country went up by 20 percent. Here are the performances of the three funds before management fees set at 15 percent of gross profits:
Fund Gross Return
A................... 50%
B................... 20%
C................... -10%
At year end. Most clients had left fund C, and Global group closed this fund. At the Stan of 2008, Global group launched an aggressive publicity campaign among portfolio managers, stressing the remarkable return on fund A. If potential clients asked whether the firm had other hedge funds invested in the particular emerging market, it mentioned the only other fund, fund B, and claimed that the group's average gross performance during 2008 was 35 percent.
a. Compare the average gross return and the average net return on the three hedge funds with the percentage increase in the stock market index.
b. Comment on the publicity campaign launched by Global group.