By Clayton Browne on November 14, 2015 11:44 am in Business According to Elizabeth Parisian and Saqib Bhatti of the Roosevelt Institute, the decision by pension funds to invest in hedge funds some years ago has had disastrous consequences, ultimately resulting in subpar returns for the pension funds and paying billions in undeserved fees to hedge fund managers. The new report from the Roosevelt Institute is titled “All That Glitters Is Not Gold”, and takes a closer look at whether hedge funds have provided U.S. pension funds better and less correlated returns as promised, and also tackling the question are hedge fund fees adequately disclosed and as high as many critics suggest. Methodology of the study Parisian and Bhatti analyzed 11 U.S. public pension funds investments in hedge funds. With publicly available data and data given by the pension funds, the authors undertook a year-by-year comparison of hedge fund net returns and total fund net returns for each pension fund. The study also compared the hedge fund rates of return to fixed income net returns for each pension fund to figure out whether hedge funds actually came through on their promise of uncorrelated returns and if less expensive fixed income strategies actually offer better net returns. Hedge fund fees are not completely reported or fully accounted for, so Parisian and Bhatti used industry standard fee structures such as management and incentive fees then projected actual fees charged by hedge fund managers based on earlier statements of net return to investors. These figures are not exact because of lack of transparency with hedge fund fees, but are certainly close enough to come to a conclusion regarding the hedge fund investments by pension funds. http://www.valuewalk.com/2015/11/pe...m_campaign=EMAIL_DAILY&utm_content=quick_link
Some study a while back showed that the dollar return to investors in hedgefunds has been negative. It makes sense. The hedgefund managers could not create so much personal wealth in a stable industry (investing) without it really just coming from the pockets of someone else.
I was looking through a hedge fund database recently and found a sad state of affairs. About 90% of the track records are a total yawn. They seem to have lost their reason for existing, which historically has been to make outsized market beating gains. Many are achieving high single digits or in the mid teens at best, usually after a horrible year in 2008. Some fixed income arb funds seem to be doing well but who wants the blow up risk? Maybe HFs will have their day in the sun again down the road as things normalize but right now it's DEAD money.
What do you expect, when an industry values contacts and degrees over skill and hard-work, the results are clear.