- Courtesy of Adam Jeffery/CNBC
There’s a massive mismatch in the hedge fund industry.
Hedge fund investors are expecting too much, and the hedge funds themselves are underdelivering.
BNY Mellon and FT Remark on Tuesday released the findings from a survey of 400 investors, and nearly all of them expected to make a net return of at least 9% on their hedge funds last year.
That’s a far cry from what hedge funds actually returned: a net decline of 2%, according to the data tracker eVestment.
Five percent of investors expected even more astronomical performance from their hedge fund portfolio last year, or at least 18% net returns, the survey said.
Thirty-two percent of the investors expected their hedge funds to return 9% to 11% last year; 30% expected a 12% to 14% return; and 32% expected 15% to 17%.
BNY Mellon surveyed pensions, endowments, sovereign wealth funds, and insurers based around the world – the typical big investors in hedge funds.
The dramatic mismatch between what hedge fund investors expect from their funds and what the funds are delivering is why so many market participants are predicting prolonged suffering in the hedge fund business. Many funds are having to lower fees or offer other investor perks to compensate. Some managers are even starting to offer retail hedge funds, otherwise known as alternative mutual funds, to tap into a larger investor pool.
That represents an industry shift. In the past, hedge funds did beat the stock market and provided a hedge to market downturns, which is why investors were willing to pay high fees, typically 2% of assets managed with a 20% performance fee on top. But that model is fading for most funds.
That’s not to say that at least some funds weren’t delivering bumper returns last year.According to people familiar with the performance, those hedge funds include:
- Element Capital Management, which returned about 22%.Capula Investment Management, which posted gains of 7.5%.Perceptive Advisors, which posted a 51.8% return for its $1.5 billion Life Sciences fund.
Those wins contrast with the more prominent stumbles among some of the world’s best-known hedge funds.
Bill Ackman’s Pershing Square Capital had its worst year last year, declining about 20%, for instance. And David Einhorn’s flagship fund at Greenlight Capital alsotumbled about 20%.