Some of the most famous minds in investing convened this week for the SALT conference in Las Vegas, an annual celebration of hedge funds. Feeling the weight of years of underperformance and an uptick in client defections, the mood was anything but festive according to the Wall Street Journal.
But this year hedge funds arrived with unprecedented questions about their worth from their investors, and even some of the managers themselves. That is largely because since the start of the bull-market run in early 2009, a more traditional mix of stocks and bonds bested a broad hedge-fund index in 22 of 28 quarters, according to a Wall Street Journal analysis of data from research firms HFR Inc. and Morningstar Inc.
Investment banks love to sponsor hedge fund sales because of the higher revenue generated by high management fees. Our old friend Chuck Clough, former chief investment strategist from Merrill Lynch, was famous for saying, “hedge funds are not an asset class, they are a pricing alternative.” High fees are not necessarily correlated to high returns.