Tags: hot | Hedge | funds | cool

Study: Hot Hedge Funds Turn Cool, Down the Road

By    |   Thursday, 28 August 2014 08:15 PM

It's often tempting to dive into investment funds that have a strong recent performance. But when it comes to hedge funds, that may not be such a great idea, according to a new report from money manager Commonfund.

"The draw of managers that have produced outsize recent winners can be powerful," write the report's authors, Kristofer Kwait, head of hedge fund research at Commonfund, and John Delano, director of hedge fund strategies.

"Yet such a strategy can work against investors in the long run. That is at least partly because this strategy is implicitly based on the manager's ability to continue to track market movements across investment environments."

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And the evidence shows that ability isn't strong, Kwait and Delano say.

Their study showed that winning hedge funds generated returns of 13.3 percent over the next 18 months, compared to an average of 10.6 percent for all funds. But the advantage dwindles and then disappears over time.

The hot funds performed equally to funds as a whole over 36 months and lagged over 48 and 60 months.

Many financial analysts complain that hedge funds in general offer lackluster returns for outrageous fees. Public pension funds apparently agree. Some of them are reducing their hedge-fund exposure, The Wall Street Journal reports.

That includes the California Public Employees' Retirement System (Calpers), the country's largest public pension fund. It will likely slash its hedge-fund allocation 40 percent this year to $3 billion, a source familiar with the move told the Journal.

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It's often tempting to dive into investment funds that have a strong recent performance. But when it comes to hedge funds, that' may not be such a great idea, according to a new report from money manager Commonfund.
hot, Hedge, funds, cool
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2014-15-28
Thursday, 28 August 2014 08:15 PM
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