15/06/17

Hedge fund returns are still falling short of the S&P 500

Hedge fund returns for May are in — and they’re still falling short, reports the New York Post.

Last month, the hedge fund industry, which controls more than $3 trillion, gained a paltry 0.26 percent, according to data provided by Preqin, an industry research firm. The S&P 500 rose 1.4 percent over the same period.

What’s worse, the hedge fund industry would almost have investors believe that its lackluster returns should be celebrated.

“There have only been three months since the start of 2016 in which hedge funds saw losses, and this should bolster investor confidence in the asset class,” Amy Bensted of Preqin said in a release Tuesday.

But over the same period, hedge funds only beat the S&P 500 in six of the last 17 months. While the S&P 500 is up 6.8 percent through the end of May, the hedgies delivered only 4.4 percent after fees.

Hedge fund investors aren’t just losing out on the lower returns, they also pay a hefty premium for the privilege of underperformance.

An index fund that tracks the S&P 500 typically charges less than a quarter of a percent fee while hedge funds typically charge 2 percent for managing investors’ money and an additional 20 percent on any profits.

Investors have gotten wise to problems in the hedge fund industry after the last two years as several pension funds and other large investors reduced or completely eliminated their positions.

One pension cut its investments in hedge funds by half last year, finding that the hedge funds that were too closely tied to the S&P 500 were too expensive for their weak returns. The hedge funds that made the cut are ones that are expected to deliver returns if and when the S&P 500 falters.

“Hedge funds are legitimate but we were overcommitted,” the pension fund manager told The Post.