Good News / Bad News for Hedge-Fund Investors

On this very cold weekend, I offer the Saturday edition of Barry Ritholtz's Big Picture blog, one of the many articles featured today is on one of our favorite topics -- hedge funds.  Enjoy and stay warm! 


Good News / Bad News for Hedge-Fund Investors

January 12, 2018 2:00pm by Barry Ritholtz

Hedge Funds Had a Good Year, Just Not Good Enough
And yet an industry with high fees and ho-hum performance continues to thrive.
Bloomberg, January 12, 2018

 

 

 

Attention hedge-fund investors: I have some good news for you. I also have some not so good news.

The good news is that 2017 saw hedge-fund managers generate the best annual returnsin four years. According to a recent report from Hedge Fund Research, funds gained 8.5 percent in 2017. On an asset-weighted basis, the gains were 6.5 percent, still the best annual performance since 2013. Profits for the managers and general partners were also at four-year highs.

The not so good news? For investors (or limited partners), these funds on average are still lagging behind broader indexes. To cite just one example, the Standard & Poor’s 500 Index had a total return of 21.8 percent last year — more than double the average for hedge funds. And many overseas markets — especially for investors using U.S. dollars — did even better. The iShares MSCI Emerging Markets, for instance, had a return of 37.1 percent.

This matters a great deal. Hedge funds have assets under management of about $3.3 trillion, much of it in the U.S. Pensions, endowments, foundations and other large institutional public investors, along with many ultra-high net worth individuals, have put money in these alternative investments.

The HFR report inadvertently reveals how difficult it is to track performance relative to benchmarks within the hedge-fund industry. There are lots of different types of funds, and the list keeps getting longer: Start with the traditional long/short, arbitrage and macro hedge funds, as well as event-driven and activist funds. Don’t forget distressed and restructuring funds. Add to that the risk-parity strategies and relative value funds. I would be remiss if I omitted multistrategy, yield alternative or asset-backed funds. And this year, there is a new category: blockchain funds.

 

Continues at Hedge Funds Had a Good Year, Just Not Good Enough