Slow death of the hedge fund era
2016 was a bad year for hedge funds, pension funds, and university endowments. In fact, the last several years have been horrible. But until now, there haven’t been many alternatives. Hedge Funds became popular for investors who wanted to achieve more than the 4% or 6% offered by traditional managed investments like mutual funds. Although their history evolved from the idea of ‘hedging’ the market (hedge funds could sell AND buy, can you imagine?) this quickly evolved into an asset class where managers employed strategies based on mathematics in order to achieve above than average and above than expected returns. And some private funds such as Renaissance do very well year in and year out – continued to this day. But the majority suffer from strategy fatigue, and failure to bring in a new generation of ‘quants’ that can do anything more than copy, paste, and cold call. If we skip all the Soros bashing about how he manipulates politics (which, on the surface, is not a bad investing strategy if you have the money to do it, and to control both sides – this is a Rothschild invention not a Soros invention) – the Soros family of funds outperformed their peers by a significant multiple. These funds were trading the markets, unlike what some may want us to believe. Some of their policies to ‘influence’ foreign markets (historically, from the 80s) may have been seen as unethical – and it may be. But the returns have always been spectacular. We’ll see soon if Robert can continue the family legacy of great returns – it looks like – yes he can!
But the few examples of extraordinary funds with consistent returns like Renaissance, they’re an anomaly. The industry in general has suffered from poor returns, which when combined with the standard 2/20 fee model – can be disastrous for investors’ confidence. Bloomberg ran a story recently with verbage such as “The year Big Money ditched Hedge Funds:
“There has been a massive blowback from public pension funds and private endowments,’’ said Craig Effron, who co-founded his Scoggin Capital Management nearly 30 years ago. An investor told him recently that many chief investment officers are so fed up that they would prefer to entrust their cash to a trader who charged no management fee, over one who did, even if they expected the latter to make them more money.
Public retirement plans from Kentucky to New York, New Jersey and Rhode Island have decided to pull money from hedge funds. So did a state university in Maryland and other endowments. MetLife Inc. and other insurers followed suit. Money-losing firms were forced to reduce their fees. Client withdrawals ($53 billion in the last four quarters) drove some managers out of business, including veteran Richard Perry, who until recently had managed one of the longest-standing and better-performing firms.
It’s not surprising that investors – especially institutional investors, are abandoning …read more
Source: Slow death of the hedge fund era
