The affair between hedge funds and their investors is over.
Hedge funds are an asset class that used to be famous for its ability to make money in all markets under any condition, but that trend appears to be dwindling. According to Reuters, the average fund lost 4.4 percent from January through the end of November, compared to a loss of just 0.19% for the market at large. And, as if the loss wasn’t bad enough, hedge fun investors still had fees to account for. “Most hedge funds have a cash benchmark so one really wants to ask — have they been better than cash after fees? My sense is that many have not,” said Patrick Rudden, head of blend strategies at AllianceBernstein. Even some big names within the hedge fund industry are reporting deep double-digit negative returns. For instance, John Paulson‘s main fund was down 47 percent, year to date, through the end of November, and he is far from the only one. Hedge fund performance across the board is down.
“I’m disappointed at the level of returns,” one large institutional investor who asked not to be named told Reuters. “The hedge fund industry has once again been underwhelming people’s expectations. “It’s an expensive asset class,” said the investor. “They’re going to have to have another 2001 or 2003 in the next three-to-five years if they expect the industry to grow.” Data from research group Preqin shows that the percentage of investors who say hedge fund returns have fallen short of their expectations has risen to 40 percent, compared to 28 percent last year and the 38 percent recorded in the wake of the financial crisis of 2008. The lackluster performance has caused hedge fund redemptions to rise.