Hedge fund managers are taking it on the chin of late.
Headlines describing an industry teetering on the brink and criticism about poor performance and high fees by the likes of investment legends Warren Buffett and John C. “Jack” Bogle are magnifying ill will against hedge funds from the public, politicians and labor leaders.
But industry sources said critics are painting the spectrum of 8,000-plus hedge funds with too broad a brush.
For starters, the top decile of hedge fund managers returned in excess of 20% in 2015. Further, Mercer Investment Consultants' analysis showed that hedge fund-of-funds portfolios outperformed typical 60/40 and 70/30 equity/bond portfolios in 2015 (Pensions & Investments, May 2).
When it comes to hedge fund fees, few institutional investors pay what used to be the industry standard of a 2% management fee and 20% performance fee, said Meredith Jones, partner and head of emerging manager research, Aon Hewitt Investment Consulting, Chicago.
Instead, the industry's average fees now are 1.57% and 17%, Ms. Jones said.
Negative ink recently has focused on the closure of the $1.5 billion hedge fund portfolio of the $51.2 billion New York City Employees' Retirement System on April 14 for the stated reasons of high fees and poor performance.
“I think the rhetoric about hedge funds has escalated to epic proportions,” Ms. Jones said. While there is “a kernel of truth to claims that hedge funds don't perform, are too expensive and that everyone is firing their hedge fund managers, making blanket statements is inappropriate, given the facts,” she added.
Pensions & Investments' analysis of hedge fund activity in the first four months of 2016 shows that few institutions are culling hedge funds from their portfolios (P&I, May 2).
Institutional activity in hedge funds this year through April 28 had terminations of $3.96 billion; investment of $3.56 billion in new hedge funds or hedge funds of funds; and searches for $20.32 billion, analysis of Pensions & Investments' data showed.