Friday, July 12, 2013

Hedge Fund Indictment – Weekend Reading

Hedge Fund Indictment – Weekend Reading

A friend of mine sent along a couple of links that demonstrates in simple prose and a couple of compelling charts the dismal performance of equity-related hedge funds.  Wealthy individuals and large institutions alike are looking for two ingredients when they pay big fees to hedge fund managers and move away traditional long-only managers.  First, they’re expecting to generate alpha or returns in excess of the S&P 500.  Second, they’re expecting the hedge funds to offer diversification from a traditional portfolio.  I’ve reproduced two charts that should dissuade any investor from aggressively pursuing equity hedge funds because neither goal is being attained.


Chart 1: Alpha Has Disappeared as Big Institutions Have Allocated to Equity Hedge Funds  
 Chart 2 -- The Benefit of Diversification Has Disappeared

For the full piece, “Hedge Fund Alpha is Negative; Down Around 1700 BPs in 11 Years” go to http://www.valuewalk.com/2013/07/hedge-fund-alpha-negative/, which references recent research from Morgan Stanley.


If you’re up for four pages about the failure of the hedge fund industry, see “Hedge Funds Are For Suckers” at  http://www.businessweek.com/articles/2013-07-11/why-hedge-funds-glory-days-may-be-gone-for-good#r=recommended

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