The hedge fund industry is in a state of crisis. Many news outlets are reporting substantial redemptions. Bloomberg recently reported that investors pulled an estimated $25.2 billion out of hedge funds in July 2016, the largest withdrawal since the global financial crisis.1 The reason is not hard to find. From January 2009 through March 2016, the S&P 500 Index earned an annualized total return of 14.5%, whereas both the broad-based HFRI Asset Weighted Composite Index and the Dow Jones Credit Suisse Hedge Fund Index (an asset-weighted index) recorded an annualized after-fee return of only 6.1%. Disappointing hedge fund returns, combined with high fees and transparency issues, were widely cited as possible reasons for the September 2014 decision by the California Public Employees’ Retirement System (CalPERS) to withdraw $4 billion from the hedge fund sector. Although CalPERS said at the time that its decision was not related to performance issues, citing instead the complexity and costs of the investment program, the annualized 10-year return of only 4.8% was less than its target return of 7.5%.2 This decision was especially significant for many smaller public pension funds. Indeed, for many institutional investors, CalPERS’s decision in April 2002 to invest in hedge funds greenlighted their entry into this sector.
Ok, this is common news. What are you asking?
You remind me of daj224 with the copy paste news postings with no comments…
Time for us to come up with the next big thing and get us some 2/20.
Shark fin fund. We can have Yao Ming “taken care of” and demand will slowly increase and BOOM! Were all rich
In. *grabs machete*
I think in Trump era we can see a turnaround.
I’m not sure if that will be the case. The decline in hedge funds is mostly driven by investors, not regulations. At the very least, the total amount of investor fees paid to active managers should decrease, so that the amount of excess return investors receive is justified for each unit of cost. The most positive thing for active management that might result from Trump’s election is probably increasing interest rates, which will help defined benefit funds meet their return targets, and therefore, increase their willingness to pay management fees.