Hedge Funds v. Stock Market

No surprise here. 2/20 is hard to beat on broad, sustained basis...

A Limited Supply of Geniuses

In today’s Times, my colleages Jenny Anderson and Landon Thomas Jr. report that hedge funds as a group are underperforming the stock market.

That should be no surprise. Even with the wonders of leverage, outperforming the stock market by enough to overcome the typical hedge fund manager’s compensation of 2 percent of assests and 20 percent of profits ought to be very difficult. As a group, it is very unlikely that a large group of hedge funds could do so on a prolonged basis.

Some — including me — have long feared that hedge fund blow-ups would provoke the next big financial crisis. Perhaps that will be avoided, but here’s a forcecast:

Within 10 years, and probably less, those who paid the big management fees to hedge funds will be asking themselves, “What were we thinking,” and conventional wisdom will be as scornful of them as it is not of those who jumped into Internet stocks in early 2000.

Source is here

Posted on November 9, 2006 and filed under Finance.