Posts filed under “Hedge Funds”
“Hedge funds have made massive mistakes. We are less and less willing to invest with these people because at the point when you need them the most, they’re worth the least.”
-George Feiger, chief executive officer of Contango Capital Advisors, wealth management arm of Zions Bancorporation. Feiger manages $3.3 billion at Contango and Western National Trust Co.
In 2008, the hedge-fund industry had ~$2 trillion under management. But as Economist’s Buttonwood points out, that year was an annus horribilis for the hedge-funds. “The average performance was a loss of 23%. In cash terms the loss for that single year was more than double the industry’s total assets under management in 2000.”
This is detailed in a new book by Simon Lack titled The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True. Mr Lack reckons that hedge funds have lost enough money in 2008 to cancel out the entirety of profits made in the prior ten years.
Mutual funds have not fared any better in 2011. Data from Morningstar shows that among 4,100 funds that invest in large-cap stocks, only 17% beat the SPX. That is the smallest percentage since 1997 beating their benchmark — the S&P500 — since 1997, when 12% beat the SPX. If we look at the percentage of funds under-performing by 250 basis, its the worst since 1998. (See chart below)
If you are looking for something to blame, consider the unholy trinity of capital outflows, a flat 2011 market and high volatility. That was a challenging environment for hedge funds and mutual funds alike.
I suspect people are disappointed when a mutual fund under-performs with fees of 0.75 to 1.75%. But the fee structure of Hedge fund managers — 2% + 20% of the profits — is why some of them face real trouble. Its bad enough to under perform, but institutions hate paying up for the privilege.
Perhaps 2012 is the year fund managers mean revert and redeem themselves. If they don’t they should not be surprised at massive redemptions each time their window opens.
More Charts on under-performance after the jump
Daily HFRX Indices Daily HFRX Indices US Dollar On-Line access to all HFRX INDEX CONSTITUENT FUNDS via HFRDATABASE.COM Monthly Performance Historical Performance NOV ROR OCT ROR YTD INDEX VALUE (NOVEMBER 30, 2011) Last 12M Last 36M (ann) Last 48M (ann) Global HFRX Global Hedge Fund Index -0.87% 0.81% -8.48% 1,114.07 -6.32% 2.55% -4.36% HFRX Equal…Read More
We don’t fancy your kind around these parts. Sheriff, why don’t you show the man to his horse, . . . its best if you were to just mosey along, move out of town. > Fascinating note from Chase to a Hedge Fund client of ours: “JPMorgan Chase will no longer provide financial services to…Read More
This morning, I got to listen to a (too short) discussion with hedge fund manager Ray Dalio of Bridgewater Associates at the Bloomberg Market 50 Summit (video here). Ray Dalio is a fascinating guy . . . he has what some people describe as a very idiosyncratic approach, but I find it logical and intelligent….Read More
MarketFolly.com puts out quarterly subscription research — Hedge Fund Wisdom newsletter — that follows what the top hedge funds are buying and explains why. Its worth checking out. Below is a recent version of a portion of the newsletter. You can find out more by emailing email@example.com. ~~~ Reducing Equity Exposure Dan Loeb’s $4 billion…Read More
I’ve spoken to a variety of Hedge fund managers and traders this week who have been ridding this market up and down. Consider this one Connecticut hedge fund manager I speak with regularly: On the long side, he is heavy into gold mining and high quality multinations; On the short side, he’s been betting against…Read More
The following data is taken from Congressional testimony of the well respected banking analyst, Bert Ely, illustrates how the Federal Reserve has gone from being a taxpayer subsidized monetary authority to one of the world’s largest and most profitable bank/fixed-income hedge funds. Mr. Ely points out the pre-crisis Fed balance sheet (Table 1) consisted mainly…Read More