Hedge Funds: Evil or Angels in Disguise

Abstract

Often the best time to invest is when it appears to be the worst time, when market conditions are deplorable. Smart Money typically has good timing. “The number of public pension plans investing in hedge funds has leapt 50% since 2007 to about 300, according to Preqin. State pension systems had $63 billion invested in hedge funds as of their fiscal 2010 and are expected to invest another $20 billion in hedge funds in the next two years, according to a recent report by consultant Cliffwater.”1 Hedge funds became better not worse after the Great Recession, as so many mistakenly predicted. Hedge funds have become more attractive to investors, both on an institutional and on a retail level. The landscape for hedge funds has ultimately become more competitive. Hedge funds have even lowered their fees. “The overwhelmingly majority of investors interviewed, both large and small, are united in the belief that the industry’s 2 and 20 fee structure is not sustainable—and that a number of the practices in the alternative investment industry (such as gates, side-pockets, etc.) will not endure.”2 One of the best-known hedge funds, Paul Tudor Jones, lowered fees. Hedge funds were also shown to add value, as evidenced by studies done on institutional investors in hedge funds. Returns also improved.