The world’s biggest hedge fund, Bridgewater Capital has reportedly enacted a hiring freeze. Another well-known hedge fund, Pershing Square Capital, recently laid people off. The move comes at a time when hedge fund returns are down and investors are pulling their money out of the funds.
CCTV America’s Karina Huber reports.
Hedge fund industry slowing downThe world’s biggest hedge fund, Bridgewater Capital has reportedly enacted a hiring freeze. Another well-known hedge fund, Pershing Square Capital, recently laid people off. The move comes at a time when hedge fund returns are down and investors are pulling their money out of the funds. CCTV America’s Karina Huber reports
Greenwich, Connecticut is one of America’s wealthiest communities. It’s often referred to as the hedge fund capital of the world because it’s home to a large number of hedge funds and hedge fund managers.
But that world is going through massive change as investors question the wisdom of giving money to an industry that charges the highest fees among asset managers-traditionally two percent upfront plus a 20 percent fee on gains.
“Obviously the fees are ridiculously high and so many observers recognize that even while there are lots of investors who pay those fees. So change is slow, but change does appear to be coming,” said Simon Lack, the managing partner of SL Advisors.
But what’s driving the weak performance? Globally, the average hedge fund was up only 1.3 percent in the first half of this year. By contrast the S&P 500 gained by almost twice as much.
Even the most prestigious hedge funds, like Bill Ackman’s Pershing Square Capital and Bridgewater Associates, are feeling the pinch. Both of their marquee funds are down substantially this year.
Daniel Alpert, Managing Partner of Westwood Capital, said part of the problem is the global economy.
“Who would’ve thought Brexit and all the other things going on, people are talking about a world that has been in something that we call a recovery,” said Alpert. “That’s not really a recovery.”
Simon Lack, the author of “The Hedge Fund Mirage,” said the problem really began in 2002 when money began flooding into hedge funds. He said the industry got too big and everyone began chasing the same trade.
Lack’s research showed that from 1998 to 2013 the vast majority of the returns on hedge funds went to hedge fund managers with investors only getting a small slice of the pie.
Institutional investor,s like pension funds and insurance companies, have been pulling money out. Globally, 84 percent of investors in hedge funds have withdrawn money in the first half of this year with under-performance being the main driver.
“The smartest people in investing are in hedge funds, because that’s where you make the most money,” said Lack. “But it’s clearly going to be even more difficult for new people to be up and coming and be really successful,”
The good news investosr is that they are now in the driver’s seat when it comes to negotiating fees, though that doesn’t bode well for many living in Greenwich.