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From Jon Stein, CEO at Kettera Strategies LLC: According to this piece from FT, Jagdeep Singh Baccher, CIO of UC Investments, recently announced with solemn gravity that his institutional portfolios are swearing off "hedge funds" forever.
The FT headline writers must have cheered: Finally, someone bold enough to cast out those overpaid, evil purveyors of private jets, rare champagne, and bad art. (Cue applause from anyone who has seen Billions or read about Greenwich mansions.)
The problem? From the sound of it, it's mostly nonsense.
Our team actually looked under the hood of UC's so-called "hedge fund" bucket (once politely called Absolute Return). Unless our information was incorrect (always a possibility), we didn't exactly discover an arsenal of diversifiers. Instead, 85% of this bucket - before it was killed off - was stuffed with lending, credit, distressed equity and debt, and event-driven trades: basically high-beta cousins of the very stock and bond markets they were trying to offset. (I invite the UC folks to counter if this information is incorrect or dated.)
Ironically, the true diversifying workhorses within the "hedge fund" definition - global macro and managed futures - together never got more than 15% of the mix . (And commodities specialists? Unless they fell under another bucket, we found practically nothing.) I'm highlighting these more arcane strategies for a reason: With the exception of long-term trend programs (briefly sidetracked by the tariff tantrums earlier in the year) they have been among the best performing alts YTD.
One thing that UC can be credited with is taking a similar sword to its illiquids; its private equity book was sliced from nearly 21% in 2023 to its present 8.1% - a relatively (and admirably) low percentage for US endowment's exposures to this potentially troublesome asset class. OK, we'll give them that one.
But railing against "hedge funds" writ large is like going to an organic grocer to eat healthier, buying only steaks and cookies instead, and when your cholesterol spikes saying the real problem is those evil organic grocery stores. Perhaps the issue isn't the store, Mr. Bachher. It's what you put in the cart…
See also the lively discussion on LinkedIn about this subject:
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