If you believe the popular press, the hedge fund industry is in a death spiral. Performance of alternative investments is in the tank, investors are ticked off about fees and assets are flowing out rather then in. Well, I for one don’t buy it. Yes, it’s true that performance hasn’t been great this year. Yes, it’s true that some managers don’t deserve the fees they earn for the performance that they deliver. And, yes, it’s true that investors are rethinking their allocations.
Hey, isn’t this exactly what free markets and capitalism are all about? The market dictates fees and manager performance dictates asset flows. The problem that the press doesn’t seem to get is that the free market is doing exactly what it should – the good managers are being rewarded the bad ones, to quote a Presidential candidate, are hearing “You’re fired!”
It’s actually quite simple: Investors act and react to one thing: performance. Positive returns = good; negative returns = bad. When managers put up less then stellar numbers, investors begin to rethink their allocations. Again it’s a simple equation and a good thing. Perhaps too many folks are managing for mediocrity and so the market will shake the charlatans out.
Hedge funds, like all industries, are going through a bit of a bad period but fear not, this too shall pass. Investors need investments that zig when the markets zag and that deliver uncorrelated returns. When managed properly, this is what hedge funds are supposed to do. Finding the right managers to deliver alpha is hard work, but it’s work worth the reward.
OFA – NYC:
I am pleased to tell you that the Operations for Alternatives Hedge Fund Compliance event is just a few weeks away. It will be held in New York City October 6 and 7. There are few tickets left, so if you are interested in learning about compliance from industry experts while networking with your peers, I suggest you register by clicking here now.
Things that drive me crazy
I must tell you that I am shocked, shocked, I say, by Hillary Clinton’s comment about her health. On Monday evening, in an exclusive phone interview with CNN’s Anderson Cooper, she said that she didn’t think her pneumonia was “going to be a big deal.” Really? Come on, does she expect anyone to believe this? I mean,come on, pneumonia is a big deal for everyone who gets it and everyone knows this. According to the Centers for Disease Control, approximately 1 million people are hospitalized for pneumonia each year and approximately 50,000 of them die. Pneumonia, even walking pneumonia, is a big deal, whether you’re running for President or not. To say or think otherwise is absolutely deplorable.
