The Massacre of Hedge Fund Business

Posted on October 7, 2016 by Dr. David Edward Marcinko MBA MEd CMP™

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By Michael Zhuang

Michael Zhuang

The Massacre of Hedge Fund Business
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I took the sensationalist title from a CNBC article I read recently. The articles talks about,  and I quote,
” … hedge funds, as a category, is experiencing the worst quarter of outflows since the bottom of the financial crisis … there were an avalanche of stories about the industry’s nearly systematic underperforming.”
Readers of my newsletter and blog, The Investment Scientist,  can thank me later for warning them years ago.
Examples
On April 28, 2011, I published “A Balanced Portfolio to Avoid (II): Hedge Funds Don’t Deliver Outstanding Returns.” Let me quote my former self:
“Hedge funds are often peddled as an unique asset class that are uncorrelated with the market. In reality, hedge funds are as much an asset class as Las Vegas is.”
The unspoken message is: you should expect to lose money.
On August 15, 2012, I published “Why You should Avoid Hedge Funds.
” I wrote that article after I read the book by former hedge fund industry insider Simon Lack, “The Hedge Fund Mirage.”  I summarized the book in one sentence for my readers: “Between 1998 and 2010, hedge fund fees totaled $440 billion vs. $9 billion profits for investors.”
Note: Hedge fund performance reporting is voluntary – unprofitable hedge funds need not report – so even the $9 billion profit figure should be taken with a grain of salt.
On June 13, 2013, I was aghast at SEC Chairwoman Mary Jo White’s proposal to allow hedge funds to market to the public. That day, I wrote a sarcastic piece “Why Allowing Hedge Funds to Market to The Public is Such A Good Idea.”
In the concluding paragraph I wrote:
“What’s unfair about the existing hedge fund rule is that only the top 1% get that bragging right. The rest of us don’t even know such a wonderful opportunity exists to transfer our puny wealth to the hedge fund managers who are really the top 0.1%.”
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Assessment
I hope somewhere out there a reader or two did not buy into the hedge fund hype because of my writings. That would make all the midnight oil I have burned worth it!

Conclusion

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5 Responses

  1. Francois, on May 16, 2017 at 11:21 AM said:

    2017 Update

    Hedge Fund Managers Don’t Always Beat the Market, but They Still Make Billions.

    http://www.msn.com/en-us/money/other/hedge-fund-managers-don%e2%80%99t-always-beat-the-market-but-they-still-make-billions/ar-BBBbA83?li=BBnbfcN

    Francois

    Like

  2. Editor, on January 3, 2018 at 2:59 PM said:

    Buffett just won his $1 million bet against hedge funds

    Warren Buffett made a bet that a passive S&P 500 index fund would outperform a basket of hedge funds over a 10-year period, and it concluded at the end of 2017. Not only did Buffett’s pick outperform the hedge funds it was up against, but it did so handily.

    Here’s the final result of Buffett’s bet on passive investing, and why Buffett prefers index funds to actively managed investments.

    https://www.msn.com/en-us/money/savingandinvesting/buffett-just-won-his-dollar1-million-bet-against-hedge-funds/ar-BBHOOSh?li=BBnbfcN&ocid=spartandhp

    Gustav

    Like

  4. Lambert, on December 12, 2018 at 6:01 AM said:

    Year to Date 2018

    Overall, stocks are down 1.5 percent this year after hitting dizzying heights in early October.
    Hedge funds are having their worst year since the 2008 crisis.

    And household debt recently hit another record high of $13.5 trillion — up $837 billion from the previous peak, which preceded the Great Recession.

    Any thoughts?

    Lambert

    Like

  5. Lambert, on January 3, 2019 at 2:57 AM said:

    HEDGE FUNDS 2018

    Hedge fund all-star David Einhorn posts his worst year ever, losing 34% in 2018.

    http://www.msn.com/en-us/money/markets/hedge-fund-all-star-david-einhorn-posts-his-worst-year-ever-losing-34percent-in-2018/ar-BBRI1l8

    Lambert

    Like

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