I'm curious how on average they are awful investments. What other major asset class yields similar (better?) risk adjusted returns?
real estate in prime locations, eg major business centers around the globe has been rewarding much better risk adjusted returns than any other asset class throughout the course of last century. id always recommend spreading the eggs across dif baskets in order to achieve the minimum variance while maximizing the return potential. in fact i wouldnt conceive a diversified investment portfolio without real estate or prime land. this is just my 2c anyway
most dont beat the SP500 and you dont really know there risk. also your locked in for while and no one talks about redemption fees.
Redemption fees ? What for ? Statistical Arbitrage Quant Driven Strategies showing so much "risk-adjusted" volatility in relation to returns...redemption fees would be my very last problem to think about if invested...
I've never talked about redemption fees, because I've never heard of a single hedge fund that charges them.
i have always looked at hedge funds as a way the wealthy "hedge" their other investments OR shoot for outsized returns. presently, non correlated, niche strategies is what is appealing. most hedge funds are nothing more than long short equity funds. these massive TF funds are quickly becoming dinosaurs. small, niche, non correlated projects are the wave of the future. regards, surf
Sprott fund in Canada charges redemption fees to avoid churning by 2001 - style Market timers. If you pull out your cash within 6 months I believe, they charge you a 2-4% management fee. Its there policy, but if you are generating 27% for the past 10 years, I think its justifiable.
"Most don't beat the SP500". The thing with hedgefunds is that NOBODY WANTS TO BEAT THE SP500. Investors in hedgefunds are typically not looking for absolute OUTPERFORMANCE of the SP500 but for outperformance on a risk adjusted basis. If you had 100m would you rather invest in something that gives you 10% over the next 15 years with a 40% drawdown over in something that gives you the same 10% over the next 15 years with a 10% drawdown? How are these returns "awful"? (This is net of all fees) If anything, buy&hold on equities has an AWFUL risk/reward ratio!
Agree makloda, hedge fund returns are "awful" : Renaissance Technologies is a hedge fund management company. Renaissance was started by James Simons in 1982. At March 31, 2007, it held some $27 billion in public equity positions. Its $6 billion Medallion Fund has averaged 38% annual returns after fees, since 1989, and is considered in the industry to be the most consistently successful hedge fund, yielding returns ten percentage points higher than legendary investors Bruce Kovner, George Soros, or Paul Tudor Jones. Because it is so successful, it charges a 5% management fee and a 44% incentive fee. A measurement of the risk (like beta, volatility, or leverage figures) which accompanied its high annual returns is apparently not publicly available. Extremely secretive (though unlike certain other investment management companies, not as secretive as to not have a public website), the company operates in East Setauket, Long Island, New York, near Stony Brook University. Administrative functions are handled out of offices in Manhattan.
Sure, but then again nobody invests 100% in US equities. The comparison is quite different if you include (high yield) bonds, emerging markets, commodities, real estate and foreign equities. And nobody invests in the CSFB index as well (unless you have access to all funds that are closed and have the capital to put money in thousands of hedge funds). A fairer comparison would be between an investable index (you have to choose between all the funds you can invest in so this approximates an educated guess) versus a diversified portfolio of (international/us/emerging) equities, (high yield/emerging/government) debt, commodities and real estate.