Posts filed under “Hedge Funds”
My Sunday Washington Post column is out. This morning, we look at why hedge fund investing is so very overrated.
The print version had the full headline then there were “You can be a hedge fund investor. But why would you?” (The online version is A hedge fund for you and me? The best move is to take a pass).
Here’s an excerpt from the column:
“Given these increased risks (and higher fees), how have hedge funds performed?
By most measures, not well. They have failed to keep up with major averages when markets were up — and they got mangled (like nearly everyone else) during the 2008-09 downturn. It turns out, most hedge funds are not very hedged.
The latest performance data (via the HFRX Global Hedge Fund Index) reveal that hedge funds haven’t fared well at all: They returned a mere 3.5% in 2012, while the S&P 500-stock index gained 16%. Over the past five years, and the hedge fund index lost 13.6%, while the indices added 8.6%. That’s as of the end of 2012; it has only gotten worse in 2013. Most hedge funds have fallen even further behind their benchmarks this year, gaining 5.4% vs. the market’s rally of 15.4%. As a source of comparison, the average mutual fund is up 14.8%.”
Some of the data on fees is pretty astonishing. According to former JPMorgan Chase hedge fund seed investor author of “The Hedge Fund Mirage,” Simon Lack, this fee arrangement is effectively a wealth transfer from investors to managers.
• From 1998 to 2010, hedge fund managers earned $379 billion in fees. Their fund investors reaped only $70 billion in gains.
• Managers kept 84% of investment profits, while investors netted only 16%.
• Fund of funds/ feeders tack on yet another layer of fees, bringing the industry fee total to $440 billion — ~98%
Astonishing. Full article at Washington Post.
You can be a hedge fund investor. But why would you?
Washington Post, May 26 2013
In our day job, we have a Fiduciary relationship with our clients. A Fiduciary has a legal obligation where all actions are performed for the benefit of the client. It is a much higher duty of care than the typical “Suitability” standard, which essentially says you cannot sell Facebook IPO shares to Grandma. We sit on…Read More
“I think [hedge funds] play an important part, particularly from the short side. Short-sellers and hedge funds are actually real-time financial detectives in that they are incentivized through profit to ferret out fraud, and I think that’s a very important role that people forget about from time to time.”
Click for video
Source: Yahoo Finance
Our quote of the day: “The activist-hedge-fund attack on Apple — in which one of the most successful, long-term-visionary companies of all time is being told by a money manager that Apple is doing things all wrong and should focus on short-term return of cash — is a clarion call for effective action to…Read More