Review: Hedge fund hate: More cash likely to flow out again this year
It’s always fun to take a couple of swings at hedge funds (though it’s starting to feel like punching down lately).
It looks like the outflows from hedge funds will continue in the coming year. Both because of performance (according to a survey referenced in the article, only 3% of managers and investors thought that hedge funds beat their expectations), but also because people are starting to catch on that there’s nothing particularly special about the hedge fund structure. They’re just really expensive actively managed funds.
So why not switch to a less expensive (though still expensive) actively managed fund that doesn’t place all sorts of restrictions on you? Or even better, move to a passive vehicle like we’re seeing across the industry?
It also doesn’t help that Warren Buffett spent a fair chunk of his most recent annual letter whacking at hedge funds, too. And he’s more than happy to back up his rhetoric. We’re nine years into his ten-year bet against hedge funds.
Buffett publically offered a bet to bet any investment professional that they couldn’t pick a group of five hedge funds that would beat an S&P 500 index fund. Shockingly, only one manager, Ted Seides of Protégé Partners, actually took him up on the bet. Seides at least had the courage of his convictions, but it isn’t looking so good for him.
In his update, Buffet said, “The results for [hedge fund’s] investors were dismal – really dismal. And, alas, the huge fixed fees charged by all of the funds and funds-of-funds involved – fees that were totally unwarranted by performance – were such that their managers were showered with compensation over the nine years that have passed, as Gordon Gekko might have put it: ‘Fees never sleep.’”
It’s hard to put a much finer point on it than that.
McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.
The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.