High Fees and lack of returns are pushing institutional investors away from hedge funds. Institutional investors such as Pension Funds and endowments invested in excess of $3 Trio in assets with Hedge Funds. However recent times have forced them to search elsewhere. With many hedge funds struggling, investors are looking for new opportunities.
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.”
Modelomni Technology Lab offers an efficient Portfolio Diversification Solution for Market Professionals, uncorrelated to Equities and Bonds.
Modelomni Raison d’etre is to constantly deliver highly sophisticated technological solutions to our clients.
Research and Development never stops or decelerates.