Hedge Funds Made Investors $1.5 Trillion in 10 Years, AIMA Says

Hedge funds have made about $1.5 trillion for investors after management fees in the past 10 years, according to an industry lobby group seeking to counter criticism over performance and costs.

Those cumulative gains came “despite the performance losses of $306 billion in 2008, by far the industry’s worst year,” the Alternative Investment Management Association said in a paper aimed at encouraging pension-fund trustees to invest, citing data from Hedge Fund Research.

Last year, the Bloomberg Global Aggregate Hedge Fund Index rose 1.36 percent, trailing the 11.4 percent gain by the S&P 500 Index. Recent critics of the industry have included billionaire George Soros, a hedge-fund manager himself, as well as the California Public Employees’ Retirement System, the largest U.S. pension, which cited cost and complexity when it announced it would pull $4 billion from hedge funds last year.

“Many trustees are asking questions about their existing or prospective hedge fund allocations,” AIMA Chief Executive Officer Jack Inglis said in a statement. “Rarely has there been such demand for a realistic assessment of the benefits and also the risks associated with hedge-fund investing.”

Hedge Fund Research calculated the returns based on the yearly change in assets under management using all of the funds that contribute to its database, across all strategies, after fees had been deducted.

Growing Proportion

Traditionally, hedge funds charge investors 2 percent of assets as a management fee and 20 percent of profits as an incentive. The proportion of hedge-fund investments that come from public and private pension funds is increasing, London-based AIMA said.

In December, a group representing some investors in hedge funds, including MetLife Inc. and the Texas teachers’ pension, called on managers to produce market-beating gains before any incentive fees are earned.

Funds trading on macro-economic trends struggled last year, while quant strategies using computers to trade on market movements saw improved performance from the second half of 2014. Both Alan Howard’s main fund at Brevan Howard Asset Management and Michael Platt’s fund at BlueCrest Capital Management, two of Europe’s largest macro funds, had billions of dollars in redemptions amid lackluster returns in 2014.

According to data from Hedge Fund Research, the industry received $76.4 billion of new investments in 2014, the highest since 2007, when investors allocated $194.5 billion. Hedge funds had their best year in 2009, with gains of $324.2 billion.

The data shows “that the industry’s post-crisis growth can be attributed to performance gains far more than capital-raising,” AIMA said.

Soros, whose firm gained about 20 percent a year on average from 1969 to 2011 before he converted it into a family office running his own wealth, said at the World Economic Forum that the industry’s performance had turned “average” in recent years given “difficult” market conditions.

“You will always have some hedge funds that provide outsized performance that make it worthwhile,” Soros said in Davos, Switzerland last week. “To put a large portfolio in hedge funds is not a winning strategy.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE