Saturday, October 3, 2015
The Hedge Fund Industry
Just received an article (via Manan Shukla) that provides a good overview of the hedge fund industry. The author was an institutional investor who was involved in selecting hedge funds. The outstanding performance of some hedge funds has stimulated a lot of demand from institutional investors and by wealth managers. It is now a multi trillion dollar industry with thousands of hedge funds offering a variety of approaches to high returns. My takeaway is that it is very difficult for most investors to do a good job of asset allocation in the selection process. One of the problems is that few hedge funds provide consistent returns and that it is difficult to determine which of the new hot funds to include on one's portfolio. The fee structure also provides a high hurdle for a hedge fund. Any hedge fund must beat the market return by 4-5% in order to provide a net return to the investor. Most hedge funds are unable to consistently beat the market rate of return.