Since 2000, according to a Morgan Stanley review, excess return of hedge funds (alpha) has dropped from 16% to -1%, while correlation of hedge funds with stock indices has gone from ~0.5 to ~0.9 (from moderately to highly correlated). In other words, except for global macro funds, hedge funds are no longer beating index funds, and in fact are no longer really hedging much of anything.
We always used to joke that "hedge fund" wasn't really a separate class of assets, but just a marketing strategy that allowed managers to extract 2 and 20 from their customers. With numbers like these, those extracting days are numbered.
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