Out of every five hedge fund managers, one is prone to fibbing, according to research from NYU's Stern School of Business. This is likely to pour salt in the wound of an industry that's been in rough shape for the past year. And, it'll probably add a bit more pressure for transparency.

The NYU report uses data from 444 due diligence reports that investors commissioned from 2003 to 2008. The research team put the information against the test of reality to see where the differences are. The most common stretch of the truth was the amount of their own money the managers put into their hedge funds, fund performance and regulatory and legal histories. One fund inflated its assets under management by $300 million, while another wasn't up front about one of its partner's legal records (he had stolen a Chinese junk).

Every investor knows this bit of math: if you lose 50%, you need a gain of 100% to recover. It sounds odd, but the math is easy. You have a stock worth $100 and take a 50% loss. It's now worth $50. To get back up to $100, you need to double your money -- that's a 100% gain.

This simple rule is painfully apparent to hedge fund managers right now. While we're all celebrating the big gains they've made this year, the funds themselves understand that there's still a long way to go.

With stock prices plunging, many investors are mad as hell and they're not going to take it anymore.

Brad M. Barber, a professor of finance at the University of California, Davis, Graduate School of Management told (subscription required) The Wall Street Journal that hedge funds are sparring with management more because it "gives them someone else to blame for their misfortune."

Maybe that's part of it, but I don't think it's just a rationalization thing. The reality is that the vast majority of companies would likely benefit from a large activist hedge fund smacking people around and keeping things honest. Most public companies have seen their operational and stock price performance tumble over the past year but executive compensation hasn't budged. Corporate governance in America is essentially a joke and if a bear market brings about a renewed focus on managerial neglect and incompetence, that's a good thing.

It might well be that many fund managers are motivated by frustration at their declining performance and are lashing out at anyone who had anything to do with it but in many cases investors are victims of bad and self-serving management.

This post is part of a series where personal finance expert Dan Solin looks at money secrets that help the rich stay rich. See them all.

Everyone understands that coin flipping is random. You can flip five heads or tails in a row and no one would believe that you are an "expert" coin flipper.

What about fund managers who have five years of stellar performance? You see the ads every Sunday hyping their superior returns.

A closer look at the data indicates that these managers are no more skilled than the lucky coin flipper.

One study looked at the performance of the top 100 fund managers over an eleven year period. Only 14% of them were able to repeat their performance in the following year.

There are many studies demonstrating that there is no reliable way to predict the performance of fund managers. This is why you always see the disclaimer that "past performance is no guarantee of future results" in advertisements for mutual funds. It's put in small type so that you won't pay much attention to it.

Here are a couple of examples (there are hundreds more):

"U.S. Global Investors (Nasdaq: GROW) has been growing its revenue and earnings at an accelerated pace
over the last few years, notes Horacio Marquez, adding "And that pace is about to pick up after a recent mild respite."

The contributing editor to The Money Map explains, "We expect very strong gains in this stock to come in short order." Here, he looks at the fund management firm.

"The reason is very simple. If you couple some of the best minds in emerging-market investments and commodity
investments with a comprehensive quantitative and qualitative approach, you get consistently top-performing
funds with eye-popping returns.

"Last year, four of the firm's equity funds, – representing more than 80% of the money under management –
were among the top performers in the overall U.S. mutual fund universe, in the one- and 10-year time
periods.

"And in the fund-management business, strong, consistent fund performance drives growth in assets under management. And since growth in assets under management drives fees, it is no surprise that this company has
been able to achieve operating income growth rates of between 27% to 94% over the last 10 years.

"In fact, the company should see accelerating earnings growth in the second half, as the interest rates cuts favor higher commodity prices and emerging-market investments – areas in which U.S. Global's funds excel.

In a New York Times column dripping with sarcasm, the brilliant Ben Stein wonders whether we should give top hedge fund managers some taxpayer dollars to manage:

Supposedly, a number of wizard managers consistently earn more than 40 percent a year for their hedge funds. Yes, I know that this conflicts with every bit of investment and market theory -- or almost every bit. I know that such a thing should be impossible. But, supposedly, magicians like Steven A. Cohen, founder of SAC Capital in Stamford, Conn., can regularly earn 40 percent a year -- often more -- on their capital.

But why waste our time on envy or disbelief? Let's put Mr. Cohen to work for the greater good. Let's have the federal government issue about $10 trillion in Steven A. Cohen National Debt Retirement Fund Bonds. After interest is paid on the bonds, if Mr. Cohen makes 40 percent on the money, the fund will return 36 percent a year. That means that in only two years, he will have made roughly $10 trillion for the taxpayers, with which he can pay off the entire United States federal debt.

Here's a novel idea: Pay someone only if they are providing better performance than no one -- not anyone, no one -- could provide.

Well according (subscription required) to The Wall Street Journal, the California Public Employees Retirement System (Calpers) is contemplating doing just that with the money managers it hires: "Calpers' investment staff plans to present to the board a system in which the pension fund's global stock managers would receive a fee only if they outperformed certain benchmark indexes. Managers whose returns failed to beat the index would be paid nothing for that period."

This makes perfect logical sense. Why pay a management fee to someone who's doing worse than an index fund? But the possible risk is that paying strictly for performance would induce managers to take bigger risks -- possibly increasing the incidence of blow-ups and rogue traders.

But these kinks could probably be worked out with careful monitoring of risk, and tailoring the bonuses to the level of risk a manager assumed. But it's time for money managers to be paid for performance. Too often, it seems they are paid just for having a pulse.

The Goldman Sachs (NYSE: GS) Global Alpha fund is supposed to be as close to perfect as any pool of money in the world, yet was down 22.7% in August [subscription required] according to the Wall Street Journal. The fund has a multi-strategy approach that allows it "the flexibility to adapt to volatile and difficult markets and avoid problems arising from any single strategy." Global Alpha has given very good returns but the music stopped about a year ago. Over the last 12 months, the fund has lost 37% of its value.

The drops shows that even very smart people can make dumb moves and stick with them too long. The Global Alpha manager has made bad decisions about investing in the Norwegian stock market, the Australian dollar, the Japanese yen and Canada's currency.

The Journal says that the problems at the fund are an example of what happens when many large institutional investors put money into similar ideas. When the market moves against these, too much money tries to exit those investments and their value drops sharply.

Well, that may be true, but the partners at Goldman are supposed to be the best in class. In other words, they are supposed to stay away from those investments that everyone else is making and find even better markets. That is why they are paid tens of millions of dollars a year.

The fund's managers must have forgotten what got them their positions in the first place. They were smarter than everyone else. At least for a while.