Public Investors Challenge Hedge Funds to Lower Fees

A number of public investor chief investment officers (CIO) are subscribing to the belief of having fewer hedge fund managers, but allocating more money to each relationship. CIOs understand that having too many hedge fund managers in a portfolio can dilute investment performance. Diversification in terms of hedge fund managers may not be the answer in an absolute return portfolio. CIOs instead are putting money towards managers where they believe skill is high.

It is paramount to keep in mind that hedge fund returns were excellent or decent when the industry was small. The hedge fund industry had a major setback in 2008. The majority of hedge funds have a life cycle; very few hedge funds can post major returns year after year, especially as their assets under management swell. Sovereign wealth funds and public pensions are lured to the bigger hedge funds. Large hedge funds usually maintain a robust infrastructure. Smaller hedge funds tend to outperform the bigger hedge funds due to many factors such as investment universe opportunities.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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