Hedge Funds Have Sucked For a Decade
Each and every hedge fund investor in the world believes that he is paying all that money to a hedge fund manager because he has one of the really good hedge funds. The reality is, most hedge fund investors are suckers.
Hedge fund investors believe in the “magic genius” myth, which is to say that they believe their hedge fund manager’s high fees are justified because he is brilliant enough to beat the market and/ or provide steady returns in times of crisis. The numbers show that for the vast majority, this assumption is completely wrong. Please, urge your Smart Finance Guy friends to read this analysis by Pension Partners of the past decade in hedge fund returns:
Since the start of 2005 (10+ years), the HFRX Global Hedge Fund Index and HFRX Equity Hedge Index (two investable indices widely used as benchmarks in the industry) have posted negative returns (-1% and -6.4% respectively). Over that same time period, the Barclays Aggregate Bond Index was up 62.1% and the S&P 500 up 97.6%.
In plain English: for the past decade, hedge funds—which are expensive— have been a much worse investment than either a cheap stock index fund or a cheap bond index fund. Furthermore, the analysis points out that even if you invested in hedge funds only because you wanted something less volatile than stock and not fully correlated with the stock market... you still would have been way better off just buying bonds. “The hedge fund myth is that hedge funds as an asset class have been additive to portfolios over the last 10+ years,” Charlie Bilello writes. “They clearly have not.”
I know your hedge fund manager is a big genius, of course, but everyone else: Read it and weep motherfuckers.