Hedge Funds Continue to See Investor Exodus

According to Bloomberg, in the last two quarters, investors have withdrawn nearly $17M from hedge funds—that’s more money than what they invested in the funds. They’re also calling on struggling funds to reduce the fees of 2% of assets and 20% of profits that they’re usually charged. The reason for their actions is that hedge funds haven’t been doing so well lately as they’ve failed to keep up in the bull market.

Hedge fund-related losses were $537M in the first quarter. That’s a significant decline from last year’s first quarter which saw a $246M profit.

Investors are not alone in their dissatisfaction. Some of the biggest financial players in the world haven’t had the kindest words to say about the funds.

Just this April, billionaire Warren Buffet told investors at the yearly Berkshire Hathaway shareholder meeting to stay away from the hedge funds because of the poor returns and high fees. Speaking at the Milken Institute Global Conference earlier this week, Cohen spoke about what he perceived was a “lack of talent” in the hedge fund industry. Cohen formerly ran SAC Capital Advisors before he was forced to plead guilty to securities fraud.

Also at the Milken conference, Chris Ailman, who is the chief investor for the California State Teachers’ Retirement System, told BloombergTelevision that hedge funds’ fee model no longer works for big institutional investors. He also called for a reduction in fees. Another hedge fund player criticizing the industry is Third Point founder Daniel Loeb, who called the funds’ performance this year “catastrophic.”

Hedge funds are typically invested in by the rich. The funds’ financial woes began after 2008 when many withdrew from junk-grade bonds and other liquid securities that are not so liquid. About half of hedge funds assets are concentrated in equities at this time.

Even American International Group Inc. (AIG) has gone sour on hedge funds. The insurer has issued redemption notices for $4.1B of such holdings through the first quarter’s end. It noted receipt of just $1.2B of proceeds from the redemptions. In a statement, AIG said that hedge funds helped propel a $183M net loss for the first quarter.

Also cutting back on hedge funds is MetLife, which is also issuing redemption notices to a lot of its hedge fund managers. The insurance company said it would reduce its approximately $1.8B of hedge funds allocation by about $1.2B over the next two years until that amount is down to about $600M.

MetLife investment chief Steven Goulart said that the insurer had dealt with inconsistent hedge fund returns, which is why it is taking so much money out of them. He expressed concern that the market would continue to prove challenging for hedge funds. It was just last year that MetLife redeemed approximately $600M of its hedge fund investments.

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At Berkshire Hathaway Meeting, Warren Buffett Rightly Slams Hedge Funds, Forbes, May 1, 2016

MetLife to Redeem Most of $1.8 Billion in Hedge Funds Amid Slump, Washington Post/Bloomberg, May 5, 2016