The SOL Group specializes in hedge funds invested on the Paf stock market. Over the year 1999, the Paf stock market index went up by 20%. The SOL Group had three hedge funds with very different investment strategies. As expected, the 1999 returns on the three funds were quite different. Here are the performances of the three funds before and after management fees set at 20% of gross profits:
$$\begin{array} { l c c }
\text { Fund } & \text { Grass Raturn } & \text { Net Raturn } \
\hline \text { SOL A } & 50 \% & 40 \% \
\text { SOL B } & 20 \% & 16 \% \
\text { SOL C } & - 10 \% & - 12 \% \
\hline
\end{array}$$ The average gross performance of the three funds is exactly equal to the performance on the Paf stock index. At year-end, most clients had left the third fund, and SOL C was closed. At the start of 2000, the SOL group launched an aggressive publicity campaign among portfolio managers, stressing the remarkable return on SOL A. If potential clients asked whether the SOL Group had other hedge funds invested in Paf, the SOL Group mentioned the only other fund, SOL B, and claimed that their average gross performance during 1999 was 35%.
What do you think of this publicity campaign?

Question

The SOL Group specializes in hedge funds invested on the Paf stock market. Over the year 1999, the Paf stock market index went up by 20%. The SOL Group had three hedge funds with very different investment strategies. As expected, the 1999 returns on the three funds were quite different. Here are the performances of the three funds before and after management fees set at 20% of gross profits:
 $$\begin{array} { l c c } 
\text { Fund } & \text { Grass Raturn } & \text { Net Raturn } \
\hline \text { SOL A } & 50 \% & 40 \% \
\text { SOL B } & 20 \% & 16 \% \
\text { SOL C } & - 10 \% & - 12 \% \
\hline
\end{array}$$ The average gross performance of the three funds is exactly equal to the performance on the Paf stock index. At year-end, most clients had left the third fund, and SOL C was closed. At the start of 2000, the SOL group launched an aggressive publicity campaign among portfolio managers, stressing the remarkable return on SOL A. If potential clients asked whether the SOL Group had other hedge funds invested in Paf, the SOL Group mentioned the only other fund, SOL B, and claimed that their average gross performance during 1999 was 35%.
What do you think of this publicity campaign?

Quizplus · Accepted Answer

The Answer of The SOL Group specializes in hedge funds invested on the Paf stock market. Over the year 1999, the Paf stock market index went up by 20%. The SOL Group had three hedge funds with very different investment strategies. As expected, the 1999 returns on the three funds were quite different. Here are the performances of the three funds before and after management fees set at 20% of gross profits:
 $$\begin{array} { l c c } 
\text { Fund } & \text { Grass Raturn } & \text { Net Raturn } \
\hline \text { SOL A } & 50 \% & 40 \% \
\text { SOL B } & 20 \% & 16 \% \
\text { SOL C } & - 10 \% & - 12 \% \
\hline
\end{array}$$ The average gross performance of the three funds is exactly equal to the performance on the Paf stock index. At year-end, most clients had left the third fund, and SOL C was closed. At the start of 2000, the SOL group launched an aggressive publicity campaign among portfolio managers, stressing the remarkable return on SOL A. If potential clients asked whether the SOL Group had other hedge funds invested in Paf, the SOL Group mentioned the only other fund, SOL B, and claimed that their average gross performance during 1999 was 35%.
What do you think of this publicity campaign?

The SOL Group Specializes in Hedge Funds Invested on the Paf