Reuters – While hedge funds charge high fees, too many of them earn modest investment returns, and the majority do not deliver better rewards than can be gained from the wider market, industryexecutives said on Tuesday.
“The real problem is a proliferation of hedge funds getting paid outrageous amounts of money to produce mediocre returns,” Alice W. Handy, founder and president of Investure, an asset management company, told a Global Alternative Investment Management (GAIM) conference.
“The key to success is to have the (hedge fund) manager articulate a strategy that you understand … If you do not (see) these things, then you should not have them in your portfolio.”
There are up to 9,000 hedge funds controlling up to $1.7 trillion (900 billion pounds) of assets, according to a number of industry estimates. These funds, which can sell short and use leverage to make money in different market conditions, typically charge 1 to 2 percent management fees and up to 20 percent performance fees — far ahead of traditional mutual funds.
The average return for all hedge funds was about 7.6 percent in 2005, according to data provider Credit Suisse/Tremont. That compared with a 10 percent rise in global stock market returns, according to the MSCI index of world stocks.
