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Study: Big Investors Are Deserting Hedge Funds Lombardi Letter 2017-09-07 02:09:49 stock market economy rates top hedge funds UBS Group AG Fund withdrawals from some of the biggest hedge funds have been accelerating as they failed to provide higher returns. News

Study: Big Investors Are Deserting Hedge Funds

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Hedge funds

Hedge Funds’ Returns Fail to Satisfy Investors

Withdrawals from some of the biggest hedge funds have been accelerating after they failed to satisfy institutional investors seeking higher returns, a recent report shows.


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According to data from Hedge Fund Research Inc., hedge funds have seen their biggest withdrawals since the financial crisis, with investors pulling $23.3 billion in the first half of 2016. Withdrawals are the highest at well-known firms, as pension plans and other large institutional investors are pulling out after years of low returns. (Source: “Some of the Biggest Hedge Funds Are Bleeding Cash,” Bloomberg, September 12, 2016.)

Wealthy investors are turning away from hedge funds, which before the financial crisis were known for their top returns, as the U.S. and global equity markets provided much better investment alternatives for both short- and long-term investors.

For example, the S&P-500 has gained over eight percent in the past year, while the Dow Jones Industrial Average has provided over 10% in returns to investors during the similar period.

Family offices, which manage funds for the world’s wealthiest, also cut their exposure to hedge funds, according to a report by UBS Group AG and London-based research firm Campden Wealth.

“The reduction in allocation to hedge funds comes down to two concerns: high fees and disappointing performance,” Philip Higson, vice chairman of Zurich-based UBS’s global family office group, said in an interview. (Source: “Family Offices Back Away From Hedge Funds After Returns Decline,” Bloomberg, September 7, 2016.)

As an example of a large hedge fund which has seen steep withdrawals in recent months, the report investments at Perry Capital LLC dropped to $4.0 billion from $10.0 billion last September. That 60% plunge comes as the firm’s flagship fund dropped 18% from the end of 2013 through July. (Source: Bloomberg, September 12, 2016, op cit.)

Similarly, assets at Paulson & Co., which have been dropping since 2011, fell an additional 15% this year. In addition, assets at Och-Ziff Capital Management declined 12% this year as well. (Source: Ibid.)

As fund withdrawals accelerated at the some largest funds, a separate report from Hedge Fund Research showed that overall returns of hedge funds rose in August, led by energy/basic materials and activist strategies. The HFRI Fund Weighted Composite Index (FWC) also gained 0.4% for the month, increasing the Index value to 12,709 and marking a year-to-date return to 3.5%. (Source: “Hedge Funds Gain For Sixth Consecutive Month As Volatility Falls,” Hedge Fund Research Inc., September 8, 2016.)

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