Bloomberg reports that in the 12 months ending in March 2016, funds of hedge funds lost over $100M due to poor performance and outflows. The figures come from eVestment, a research firm that examined data from over 2,500 funds.
According to eVestment’s report, over those four quarters hedge fund clients withdrew $50.3B, whiles managers reported $51.5B in investment losses. Assets in the hedge fund sector dwindled 11% to $841.6B. They have not been that low since June ’09.
Funds of funds invest in hedge fund portfolios. They used to be the largest single investor of these funds and at one point were accountable for nearly 50% of assets. Now they comprise just 28%, reports eVestment. Returns for funds of funds have not improved this year so to date.
Known investors that have begun to pull out significant money from hedge funds include the New York city pension plan, American International Group (AIG)MetLife (MET), and others. The New York Times reports that Larry Robbins of Glenview Capital Management and William Ackman of Pershing Square Capital Management, two of the most well-known hedge fund managers, have lost money consistently. Viking
Global Investors and Paulson & Co. have also lost big, including, most recently, collectively billions of dollars when share prices of Valeant Pharmaceuticals International (VRX) plunged. The drop came in the wake of news of a government probe regarding pricing strategy. Other hedge fund mangers have had to close down their firms.
Many clients are disgruntled because of poor hedge funds returns and the fees that firms charge them for playing the role of middleman. In April, New York City’s pension fund for its civil employees voted to leave its portfolio, which had $1.5 in hedge fund investments.
For decades, investors have had to pay hedge fund managers 2% of assets under management and 20% of any gain made during the year. The exodus of investors is forcing some managers to lower fees as a trade for keeping investor funds tied up for longer timeframes. Some are also charging a fee if certain performance targets are surpassed. That said, according to The Times, there are other institutional investors who continue to invest in the hedge fund market.
Funds of Hedge Funds Shrink by 11% as Losses Spur Redemptions, Bloomberg, July 15, 2016
Hedge Fund Managers Work to Stanch Loss of Investors, New York Times, June 12, 2016