Here’s How Hedge Funds Did in 2019
The institutional heavyweights of the investing world are taking stock of yet another year in the markets. They did well, but did their clients?
The moment we decide to take charge of our financial lives, we immediately arrive at a crossroads. Either, we can invest actively, picking winners in the industries of our choosing and trying to outperform our hometown index (the S&P 500 in the US, or the DAX in Germany). Or, we can pay a suite of financial advisors and “professional” money managers to generate some sweet alpha on our behalf.
Annualizing the Invstr community’s month-on-month results from last year shows that anything is possible when you’re properly tuned into markets. However, the S&P 500’s incredible 29% gains in 2019 put most outside stock pickers to shame.
According to the Bloomberg Billionaires Index, it didn’t matter if those stock pickers were market newbies with nothing to lose or fee-charging “superstar” fund managers with famous surnames! A third of hedge fund managers delivered an under-market performance in 2019, and even if they beat the market, and huge fees on gains often pulled back real returns.
Not that it mattered! The correlation between pay and actual performance is slim to none; most managers earning just as much from their real gains as they do from fees.
The richest hedge fund managers in the world – all men, by the way, are led by activist investor Chris Cohn. He delivered a fantastic 41% gain to earn his $1.8 billion in fees last year, while Jim Simons, the retired algorithmic trader, only scraped 14% for his $1.7 billion!
This chronic underperformance goes back decades and may be due to demands of managers to diversify beyond specialisms and predict the unpredictable future. Nothing is expected of smaller investors, and nothing is off-limits. Many funds close simply because they aren’t good enough at marketing and inspiring belief in their “long-term, all-weather strategies.”
