Hedge funds have suffered from misconceptions, investor unease and market downturn since the financial crisis – and may be flunking out this year, according to an alternative investing expert
Hedge funds have suffered from misconceptions, investor unease and market downturn since the financial crisis – and may be flunking out this year, according to an alternative investing expert.
“It’s a sign of maturity in the industry,” says Peter Figura, Director of sales at RISE REIT. “In North America, more have closed than opened. What’s happening is that a lot of them are really just long short funds with just one strategy and when the market is swinging, that strategy might backfire.”
Clients have been pulling away from hedge funds for three straight quarters, according to Bloomberg News, with net $15 billion yanked from the funds between January and March. Assets under management have shrunk from $2.9 trillion to $2.86 trillion – the biggest downturn since investors pulled $43 billion from the funds during the financial crisis.
As well, prominent investors such as Warren Buffet have slammed hedge funds, saying they charge excessively high feels while trailing broader markets.
Figura says that the general perception that hedge funds pose higher risk hasn’t helped their popularity, especially as investments such as ETFs gain traction.
“There is a bad rap around the funds, and how people see them compared to mutual funds, stocks or bonds - they’re not in the same category,” he says. “ETFs are much easier, and people tend to understand them a little bit better. As well, with alternatives, there are more of them and they are not maturing. The industry is still in the early stages and there is more interest.”
“I think the education of the investor will start playing a bit more. ETFs right now are huge, everyone has heard of them, and distribution is easier because all the banks have them, all the IIROC firms have them and you have advisors being able to deal with them. That definitely is affecting hedge funds.”
However, he adds, hedge fund confusion doesn’t just lie on the client side; advisors with less experience may be hesitant to add them to a portfolio without an intimate knowledge of hedging strategy.
“Advisors need to properly understand how to position hedge within a client’s portfolio,” he says. ‘“I think because the world is getting more complicated, you have to know what’s behind every hedge strategy, how it fits in the portfolio, and how to position it properly to help the client. I think if they don’t understand and educate themselves on how to hedge, then they’ll be avoiding that.”
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“It’s a sign of maturity in the industry,” says Peter Figura, Director of sales at RISE REIT. “In North America, more have closed than opened. What’s happening is that a lot of them are really just long short funds with just one strategy and when the market is swinging, that strategy might backfire.”
Clients have been pulling away from hedge funds for three straight quarters, according to Bloomberg News, with net $15 billion yanked from the funds between January and March. Assets under management have shrunk from $2.9 trillion to $2.86 trillion – the biggest downturn since investors pulled $43 billion from the funds during the financial crisis.
As well, prominent investors such as Warren Buffet have slammed hedge funds, saying they charge excessively high feels while trailing broader markets.
Figura says that the general perception that hedge funds pose higher risk hasn’t helped their popularity, especially as investments such as ETFs gain traction.
“There is a bad rap around the funds, and how people see them compared to mutual funds, stocks or bonds - they’re not in the same category,” he says. “ETFs are much easier, and people tend to understand them a little bit better. As well, with alternatives, there are more of them and they are not maturing. The industry is still in the early stages and there is more interest.”
“I think the education of the investor will start playing a bit more. ETFs right now are huge, everyone has heard of them, and distribution is easier because all the banks have them, all the IIROC firms have them and you have advisors being able to deal with them. That definitely is affecting hedge funds.”
However, he adds, hedge fund confusion doesn’t just lie on the client side; advisors with less experience may be hesitant to add them to a portfolio without an intimate knowledge of hedging strategy.
“Advisors need to properly understand how to position hedge within a client’s portfolio,” he says. ‘“I think because the world is getting more complicated, you have to know what’s behind every hedge strategy, how it fits in the portfolio, and how to position it properly to help the client. I think if they don’t understand and educate themselves on how to hedge, then they’ll be avoiding that.”
Related stories:
Alternatives ripe for growth moving forward
Hedge fund manager bankrolls Hulk Hogan
