According to this weekend's Wall Street Journal, the rich are "bailing out" of hedge funds. Says Robert Frank, "In 2005, the world's financial millionaires (those with investable assets of $1 million or more, not including primary residence) had 20% of their investments in alternatives. In 2006, they cut that exposure in half, to 10%."
Of course, everyone is speculating about what it all means. Are the days of big returns from hedge funds over? Are we approaching a credit crisis, or another Long-Term Capital Management-style blow-up that will threaten the liquidity of the capital markets?
Here's another possibility that may be part of the explanation: Maybe astute, wealthy investors are realizing that hedge funds can't, on average, generate returns strong enough to justify the "2 and 20" compensation plans that make even mediocre managers exceedingly wealthy.
If scholars like Burton Malkiel are even close to being right about the efficiency of markets, hedge funds are a bad deal.
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Reader Comments (Page 1 of 1)
6-30-2007 @ 10:12PM
george moyer said...
One has to wonder if anyone should own stocks or funds. CEO,S salaries and perks out of control. fund managers salaries outrageous. Much of your investments taken by slick greedy operators.
7-01-2007 @ 5:37PM
Mike said...
George...You are SO RIGHT! Grossly overpaid CEOs and managements as well as brokers and financial service personnel. Maybe some deflation or slight depression is what this greedy country needs to get it back to basic fundamentals.
7-02-2007 @ 2:37PM
Gumby said...
hey why dont you sport fans say the same aboutgreedy star players,too?? What about the Hollywood stars, best sellers authors, etc,etc?? Why nitpick on CEOs?? Everyone is after the dollar sign including YOU!!! Just dont buy anything from the greedy freaks!!!