The California Public Employees’ Retirement System is no longer a fan of hedge funds. I never was. But our reasons aren’t exactly the same.
With $295 billion in assets, Calpers discovered the challenge of finding great hedge funds and not overwhelming them with size. It had invested just $4 billion in this asset class–hardly enough to “move the needle” and, in its view, hardly worth the effort given the complexity and high cost.
I think the standard 2-and-20 fees are ridiculous, when the benefits are uncertain and the transparency so lacking. Hedge funds, as measured by the HFR index, have underperformed a balanced index of 60% stocks and 40% bonds in each of the last five years.
I’m especially skeptical of hedge funds marketed through third-party financial institutions, like registered investment advisers and broker-dealers. Top-performing hedge funds don’t need advisers to sell their products. Who does? Maybe just the funds that can’t gather assets on their own accord because they’re nothing special.
Bari Goodman
The dirty little secret of “open architecture” is that most financial institutions select external managers who share the economics. It’s not a matter of best in class. It’s a matter of who pays (and can still pass due diligence), which might actually be a formula for negative selection.
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The New York Times describes my novels as “money porn,” “a red-hot franchise,” and “glittery thrillers about fiscal malfeasance.” Through fiction I explore the dark side of money and the motivations of those who have it, want more, and will steamroll anybody who gets in their way.