What’s the Deal with Hedge Funds?
The most important people in society are teachers, but hedge fund managers fit in somewhere. If it weren’t for their market analysis, there’d be no stock price discovery, and we need that for companies to be valued properly based on how much capital they deserve.
The best companies deserve the biggest valuations, so they can raise the most money. If we don’t have that, society will crumble on top of shaky business foundations!
Such is the way; hedge fund managers won’t take a teacher’s salary. Their work involves discriminating against some companies in favor of others; stock picking; investing, and this they do with other peoples’ funds for a massive fee.
The news this morning is that hedge fund fees are falling hard; both their steady management fees on assets under management (AUM), and performance fees on potential gains. It’s been going this way for 12 years!
The decline of active management is down to investing competition being more numerous, aggressive, and able than ever, meaning new strategies are needed to outperform. It’s been hard to come up with new strategies that work and justify the big fees, as free, hands-off, passive funds, especially those tracking tech, have soared for over a decade now.
We’ve seen a spate of billionaires depart the hedge funding field; Louis Bacon, Druckenmiller, Paulson, and these are the Superinvestors, the truth is that most “pros” aren’t even that good and aren’t trusted to outperform an index, so new managers are struggling to start-up.
It takes decades to prove that you can outperform the S&P 500, and you need sales skills to charm clients to back you. The good news is that finance and law are over-subscribed vocations and a fresh batch of investors are coming, and also that economic cycles will turn.
There will come a time when investing superstars are back in demand, and can charge extortionately again. We hope they can deliver equal value, or else society will crumble!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
