Expect Hedge-Fund Returns to Be More Honda Than Rolls Royce, Point72 SaysBy
Industry faces backlash after years of lackluster performance
Firms may combine human skills and computer power to gain edge
Hedge funds will have to adapt to a more challenging market as investors respond to disappointing returns by demanding their fees back or pulling out altogether, according to Matthew Granade, chief market intelligence officer of Point72 Asset Management.
No matter how you "slice-and-dice the data,” hedge funds are struggling to meet their promise to clients to consistently produce high returns with low correlation to markets, Granade said at the London School of Economics’ alternative-investment conference on Monday.
“It’s kind of: ‘I promise you a Rolls Royce and I give you a Honda’,” he said. Investors “ultimately come back for a refund, and we are seeing a lot more of that in our industry," he said.
The $3 trillion industry is facing an investor backlash because of years of poor performance and high fees charged by hedge funds. Clients pulled $106 billion from the industry in 2016, the first net withdrawals since 2009, according to data from eVestment.
Point72, Cohen’s family office, manages about $12 billion and returned about 1 percent in 2016, the second-worst annual performance ever for the billionaire investor, people said last week. On average, hedge funds returned 4.5 percent last year, according to data from Hedge Fund Research Inc.
Granade, a former co-head of research for Bridgewater Associates who joined Steven A. Cohen’s Point72 in 2015, said the industry should consider combining human skills with computer power to stay ahead in a world awash in data.
“One of the areas I see having the most potential right now is what you might call quantimental investing,” he said, referring to an emerging area of investing that fuses fundamental analysis and data. It relies heavily on alternative data sources such as credit-card usage patterns and geographical locations.
Granade’s role includes overseeing the firm’s big-data push.