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Alternative Market Briefing

"Hedge fund industry needs to shrink"

Thursday, September 29, 2016

Komfie Manalo, Opalesque Asia:

Writing for CNBC, Josh Brown, creator of The Reformed Broker blog and financial advisor for Ritholtz Wealth Management, said that he has "never seen anything like the massacre of the hedge fund business this year."

Brown said, "I don't believe that the hedge fund industry will go away, but in order for the very best managers to shine again in a reliable fashion, it probably needs to shrink. The good news is that this process is already underway. The bad news is that it doesn't look pretty or feel good while in progress."

He noted that every "name brand" hedge fund is facing redemptions to the tune of billions of dollars, citing pension funds across various American states and university endowments which have exited or are rethinking their hedge fund portfolios.

10,000 hedge funds managing $3tln is a lot compared to the few hundred funds managing $39bn in 1990, he said. And "Size is negatively correlated with outperformance; this is an immutable law of finance. If there are ten times the amount of people doing the same trades, with ten times the amount of money, there is not going to be a correspondingly larger amount of alpha to go around. It doesn't work that way."

Furthermore, the current generations ("Gens X and Y") are a lot less tempted to speculate ......................

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