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Alternative Market Briefing

Hedge funds’ popularity, too many investors, are killing the industry

Monday, June 06, 2016

Komfie Manalo, Opalesque Asia:

The popularity of hedge funds is killing the industry as the overabundance of investors have raised assets to $2.9tln but skilled managers and exploitable market inefficiencies are becoming scarce, said Bloomberg Gadfly columnist Nir Kaissar.

Kaissar said in his article, "So what's killing the golden goose? In a word: Investors. It's likely not a coincidence that as the number and size of hedge funds have swelled, hedge-fund performance has sunk. Hedge funds' success ultimately hinges on two scarce resources — skilled managers and exploitable market inefficiencies — and there simply isn't enough of either one to support a $2.9tln industry."

He explained that since 1992, the hedge fund industry has outperformed the S&P 500 with the HFRI enjoying an average annual return of more than 10% compared with S&P’s average annual return of 9% during the period. However, over the past 10 years, the situation has reversed with the HFRI returning an average 3.4% annually as against the S&P 500’s 7% annual return in the same period.

Kaissar added that hedge funds have been consistently losing on performance. "Name your strategy — equity hedge, event-driven, macro, relative value — all of them have weathered the same steady decline in rolling 10-year returns since 1999," Kaissar said and added, "Hedge funds......................

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