In 2008, Warren Buffet, the richest investor at that time made a bet against hedge fund industry, Protégé Partners, a group of talented people who are terrific at making money from the capital market. Buffett issued a challenge to the hedge fund industry which states that S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over the 10 years ending Dec. 31, 2017.
This year’s annual meeting of Berkshire, Buffet again emphasized that a hedge fund is not a good way to put your money in. The trading strategies from hedge funds went far from the value investment belief which buffets hold. The conflicts between their values drive the conflicts of investment activities.
This year, lots of hedge funds suffered from this market condition. According to a speech from the president of Blackstone, Tony James, this morning in Toronto, a quarter of a $2.9 trillion for hedge fund industry will be withdraw by the investors late this year due to the concern of the volatile market.
“It’s kind of a day of reckoning that we face here,” James said Wednesday in an interview with Bloomberg TV Canada’s Pamela Ritchie at a conference in Toronto. “There will be a shrinkage in the industry and it will be painful. That’s going to be pretty painful for an awful lot of places.”
Hedge funds have lost 1.8 percent this year, according to Hedge Fund Research’s global index, the poorest performance since 2008. The industry had net outflows of $16.6 billion in the past two quarters, the most since 2009, according to HFR. In 2015, 979 funds closed, more than any year since 2009, according to the research firm.
James also called out hedge-fund managers for the fees they charge, which are typically 2 percent of assets annually and 20 percent of investment profits -- a structure he said “is hard to justify these days.” Billionaire Warren Buffett last month described such fees as “a compensation scheme that is unbelievable,” and Bill Gross of Janus Capital Group Inc. said on Twitter: “Hedge fund fees exposed for what they are: a giant ripoff.”
Tudor Investment Corp., one of the oldest and most expensive hedge funds, is trimming fees, according to a letter sent to clients this week. The $11.6 billion firm, run by billionaire Paul Tudor Jones, will reduce fees for a share class that contains most of its biggest fund’s money to 2.25 percent of assets and 25 percent of profits starting July 1. That’s down from 2.75 percent and 27 percent.
“We’re talking about three years of under-performance, the fact that investors pulled $1 billion of capital and already a 2-and-20 fee structure which is under duress,” Ilana Weinstein, the chief executive officer of IDW Group, which recruits investment professionals for hedge funds, said of Tudor. “Investors aren’t really excited about a slight discount for crappy performance.”
Hedge fund used to be described as a group of talent people who can manage the portfolio profitable and constantly beat the market with a positive alpha. However, the recent performances for those hedge fund received complaints from everywhere. Investors are calling for poor performance which even lose to the benchmark.