Scott Wilson, Chief Investment office of $8.9 Bio endowment fund at the Washington University in St Louis, Missouri was appointed two years ago. During his time, he has turned away from hedge funds, reducing the hedge fund share from $20% to a little over 10%.

Scott Wilson also said, “We got out of the hedge fund portfolio, we don’t want any investment just for the sake of having that investment.” In the future, he plans to reallocate resources to back around 15-20% albeit very cautiously. “It’s not that all hedge funds are bad, but you have to be very careful in the selection process”

This is not a shock after years of underwhelming performances from hedge funds. Hedge Fund Managers have failed to outperform the S&P 500 Stock Index every year since 2009, in both rising and falling markets. Last year provided their best returns but still lagging behind the market.

The longest bull market in history has led to an increase interest in tracker funds.  Investors search for alternatives to hedge funds. This search has caused private equity and debt to boom.

Mike Powell, head of the private markets group at London-based USS Investment Management, which manages the £68bn Universities Superannuation Scheme, stated that it had reduced it’s hedge fund holdings to less than 2% of assets from 4% five years ago. This reduction has no plans on stopping. More hedge fund positions will be removed “to focus only on those that offer strategic alignment with our investment priorities and clear value-for-money”, said Mr Powell. Unfortunately, a similar story about hedge funds remain. “The continued disappointing performance. . . at a time when fees have remained high”, he said.“The current low volatility environment has made it difficult for hedge funds to perform and, as a result, [investors] are asking questions on how they allocate in a way that they previously did not,” said Dan Nolan, a director at Duff & Phelps, a professional services group.

More pension funds, UK local authority , Calpers and PFZW are turning their back to hedge funds. Hampshire is selling out of a hedge fund portfolio with Morgan Stanley, in favour of a private debt mandate with JPMorgan.

Since 2015, the share of total hedge fund assets coming from public and private sector pension funds, endowments, foundations and insurance companies has slipped from 71 per cent to 67 per cent, according to data from the Alternative Investment Management Association. Data from HFR also shows the waning power of hedge funds, over $70 Bio has been pulled from hedge funds over the last two years.

After two years of losses in the past five, Sanjiv Bhatia had some powerful words to say. “There’s a very strong recency bias in all investment decisions,” said Sanjiv Bhatia, who runs the Pembroke Emerging Markets hedge fund in London and previously managed emerging-markets portfolios for Harvard’s endowment. “People chase returns, and it’s no different at the top of pension funds,” he said. “People up there are not more visionary.”

Source: Financial Times

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Many were shut down due to rising costs and underperformance. The few which survived were barely afloat or returning capital to investors. As a result, for the fifth straight year, there will be more closures than launches. More than 4,000 funds have been liquidated in the past five years, according to data compiled by Hedge Fund Research Inc.

This is not something that has affected new hedge funds. Legendary trader Louis Bacon announced his retreat into a family office and would return capital to investors. A combination of the longest running bull market in history, investor demanding performance or the inability to raise cash to stay in the game has caused a decline in hedge funds.

Investors have yanked $81.5 Bio this year through November, double the amount in the whole of 2018 according to eVestment data. Investors are looking to invest elsewhere due to high fees and mediocre return. As for returns, there’s little to cheer there. While the S&P 500 delivered a 28% gain this year through November, the Bloomberg Equity Hedge Fund Index only managed 10%.

Here are some of the biggest firms to shut their doors to outside investment in 2019:

• Appaloosa Management
• Moore Capital
• BlueMountain’s flagship and Quant funds
• Arrowgrass
• Vinik Asset Management
• Amplitude

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Russel Clark’s Hedge fund, The Horseman Global fund, recorded its biggest ever annual loss due to short bets during the longest bull market in history. The hedge fund fell 35% last year.

Contrarian bets made Clark on of the most watched fund managers in the word. He wagered against equities since 2012 and raised its net short position to a record 111% of gross assets in October according to Bloomberg. However, as the S&P 500 index rose 31.5% last year, Clark’s fund is now struggling.

In 2015, Horseman Global managed $1.7 Bio. As of November 2019, the fund is down to $241 Mio. Clark is one of the last short sellers left who’s willing to make such directional bets amid a rising market and has limited time to save his hedge fund.

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It was not far into the past that Moore Capital was managing $14 Bio however towards the end of 2018, this was below $9 Bio.

In a letter to his investors which was seen by CNBC Reporter Leslie Picker, Moore Capital will be returning majority of client money from its core funds by Q1: Remington Investment Strategies, Moore Global Investments and Moore Macro Advisors. Moore also mentions the “intense competition” for trading talent and a challenging business model due to client pressure.

One of Moore’s funds fell almost 6% last year, followed by another fund dropping 3.3% according to the Financial Times. The letter states “disappointing results of these funds of the last few years”

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A decision which points to the difficulty traders are facing trying to make hedge fund strategies work.

This is not the first high profile retreat this year. In May 2019, David Tepper announced his decision to turn his hedge fund, Appaloosa Management into a family office. Reuters mention “lackluster returns” combined with “lofty fees” by hedge funds are forcing investors to reconsider.

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Firm was founded with $800 Mio from Moore Capital fund which has been recently closed along with news that Louis Bacon would be quitting trading.

The firm, founded by former Moore Capital traders Jens-Peter Stein, Kornelius Klobucar and Chris Nicoll, oversaw $3 Bio at the end of October, according to Bloomberg. This is down from $6 Bio at its peak.

“We can confirm that Stone Milliner is conducting an orderly winding down, the firm is returning all capital/assets to investors by December,” a spokesperson for the firm commented.

This is not the first story to break this story. Stone Milliner is one of many hedge funds retreating into family offices or forced to shutter. Years and years of losses joint with high fees have clients withdrawing funds. Data compiled by eVestment shows that $87.9 Bio has been yanked from hedge funds this year; twice as much as in all of 2018 according to Bloomberg.

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Furthermore, since 2015, there have been more closures of hedge funds than launches with indicators pointing to increasing competition and struggle to find returns.

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It lost 19% last year.

PointState Capital had big investments on satellite operators Intelsat, Fannie Mae and Freddie Mac which resulted in heavy losses for the firm. This is a big blow to one of the biggest hedge fund startups in the industry. Following news of Louis Bacon retreat to a family office and Stone Milliner winding down, signs are showing that more and more traders are struggling in today’s market.

According to the Financial News, stock price of Intelsat is down nearly 75% this month following a failure to secure federal backing for a private auction of some of the wireless spectrum it controls.

A person familiar with PointState said the fund was short the company’s bonds, a bet prices would decline, partially offsetting its Intelsat losses.

Fannie Mae and Freddie Mac shares were sent down due to the federal regulator requiring them to have heightened capital levels to return them to private ownership.

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