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The "Calpers vs Hedge Funds" Debate In Just Two Charts
While some are shocked by Calpers' decision to abandon hedge funds as an investment class (the first of many such "exits"), there really should be no surprise here. As we have said year after year after year (and so on), it was only a matter of time before limited partners said "enough" and stopped paying 2 and 20 to overpaid asset managers in a world in which central banks have "guaranteed" there is no longer any risk, just to underperform the market for a whopping 6 years in a row now. And to showcase where Calpers decision came from here are just two charts.
The first is from Goldman showing YTD performance by major asset class, with an emphasis on various hedge funds, and how for the sixth year in a row, hedge funds have underperformed the S&P.
Wait, six years? Impossible. Oh no, quite possible. The chart below shows that while the S&P is soaring into the stratosphere on the back of endless global liquidity injections (as a reminder, none other than JPM recently reported that global excess liquidity was at an all time high and going higher), as today's latest news out of China definitively confirmed, hedge funds returns have yet to surpass their cycle highs.
And then of course, there's this: "90% Of Hedge Fund Managers Are Overpaid Relative To "True Talent""
The fees, which still make up as much as 2 percent of a fund’s assets, represent a disproportionately high share of the total remuneration unrelated to performance, said Nicolas Rousselet, head of hedge funds at Unigestion. To align managers’ pay more with performance, the fund industry should either abandon the management fee or combine it with a hurdle rate that one must achieve before collecting incentive fees, he said.
"The philosophy of the hedge-fund industry, as it should be, is to remunerate true talent,” Rousselet said in a telephone interview on Sept. 9. “Fund managers should be remunerated when they perform. They should not be remunerated for doing nothing.”
Fees are coming down amid efforts to win mandates in an industry that traditionally charges about 20 percent on performance and 2 percent on the total assets. Investors paid an average 1.69 percent last year, with the share of those who paid 1.5 percent or more at 79 percent, almost unchanged from 2012, according to a Deutsche Bank AG survey published in February.
“Hedge-fund managers should work harder to justify the fees that they earn.”
But while it is easy to bash hedge funds for consistently generating underwhelming returns (and being massively overpaid for it), it really is not their fault: the fault is not in our stars, dear Brutus, but in the Fed, and whoever the Chief Risk Officer of the "market" may be at any given moment. Because in a centrally-planned world in which markets are not allowed to decline, hedging as a concept is made obsolete.
After all, there is no risk.
Until there is. And the biggest irony will be that the Fed's idiotic policies, now in their 6th year, will ultimately demolish the only asset manager class whose job is to "hedge" risk, and just as the market crashes, there will be nobody left hedging said crash.
Which, to some at least, will be poetically symmetric.
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CALPERS = crooks. Many years ago before Calliepornia became a total Dem Shithole - CALPERS was run fairly well. Not today. Total criminal scum.
Do you feel their decision to move out of hedge funds is a bad idea?
They're probably buying Chipotle, Tesla, Amazon, Facebook, Twitter, and soon Alibaba hand over fist.
Which will make the collapse all the more "poetically symmetric".
CALPERS never should have invested with hedge funds to begin with.
+ 4400 Billion
By "stable" they mean ever increasing prices driven purely by ever increasing asset purchases by the central banks. Appparently, the "statutory mandate" does not have any negative consequences when The Fed fails to maintain price stability. No matter what, the Federal Reserve Bank gets to maintain its racket, eliminating competition and guaranteeing profits for its member banks.
http://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_she...
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1.) CalPers are fucking idiots
2.) The plans are managed with political agenda laid there-over. Meaning breaches of fiduciary responsibility
3.) Hedge funds Are Not an Asset Class
They are merely traditional investment strategies overlaid with a shitload of hocus pocus and opaqueness
4.) Did they make more money in Hedge Funds (not another asset class) that other alternative options?
Yes or No?
Didn't think so
Another I todjaso
Years ago when Hedge Funds were just starting, I was wary when a bunch of institutional bond and equity salesmen I knew who'd never ever run a portfolio in their lives started up Hedge Funds. Assholes
Turned out so well for John Merriwether, no?
Now there are some spectacular successes, like Ray Dalio, but they are only a handful
The rest are mere asset gatherers and fee takers
That's why we call them "garage band" hedge funds around my office. Very few of them are any smarter than the guys running actively managed mutual funds. They just have more tools to get themselves in trouble with. And they have.
And your point about politically-driven investing is spot on. Not just in CA. Check out a book called "Kentucky Fried Pensions" if you have any spare time. Yikes!
Most folks are unawares of the math.
Take $1 and return 8% on it (Approx S&P ytd) Whatchu got at the end? $1.08, or an 8% rate of return.
Add $5 borrowed at say zero% (0%) and get an 8% return on it. Watchu got at the end? $5.40
Pay back the $5 borrowed and that leaves the 40 cents. Pure Profit
So if levered by 5x (Total invested $6 of which $5 is borrowed) then ya got $1.48 at the end ....... or a 48% rate of return.
Don't see them numbers anywhere on that HF performance chart now, do we?
LOL
Actually, those numbers are in there. They're reporting returns net of fees, including interest expense, if using borrowed money/margin. They still have the same problems with leverage that everyone else has- that leverage can work against you as much as it can work in your favor.
Yeah yeah yeah yeah....
There are #s up there, and even if we subtract the fees and interest on borrowings, there's nobody with a plain 5 to 6 X leveraged S&P return, is what I was getting at.
Just sayin' they cost a lot and don't do shit.
We're on the same page.
I'm just diddling myself over minutiae, enjoying throwing hockers at the victims and their sponsors.
OK on the way up, what about when a 10% drop in the market results in a 60% drop in portfolio value?
The Teachers pension in Texas is probably $100 billion. They are way underfunded and 2 years ago there solution was to overwight on NASDAQ stocks. These people are insane.
Ray Dalio is a freak of nature. He and one or two others walk the walk and do not engage in all the criminal front running bullshit like stevie cohen and a few others.
There was several dozen amendments on april 4th to cut spending on many areas to put all
the savings into the teacher retirement fund. But all the democrats and alot of the rinos voted against the teacher retirement funding. Election day is coming soon. Check the voting records if you are concerned about teacher retirement.
These evil idiots were funding Jay Z, Russel Simmons and Ron Burkle among others. It is a cookie jar to loot. 99% of hedge funds are awful. A few are decent to good. Ray Dalio's Bridgewater is one of the good ones.
You think? They have to maintain a 7.5% rate of return per year for two decades straight to not fuck over taxpayers and/or pensioners.
When CALPERS goes it's going to ruin millions of lives and take tens of millions more down with it.
Looks like Detroit pensioners are going to take about a 30% hit. So there's your starting "template" for what follows.
What they were waiting for ...get the pension to de hedge now drop the market and wipe them out.
I love future news
Dummies, it's a global industrial recovery just by AA and X and maybe some DIA to be "diversified" ... no need for hedge fund assholes, all this printing is turning the ship. slowly...
fucking Calpers...scourge on the state draining the poor debt slaves who can only wish they had those overpaid benefit clad jobs...
hows that 7.5% return pipe dream working mother fuckers...
ponzie out.....
i can't stomach the stories anymore ... but back in the day i recall reading lifeguards raking in $200K ... fire battalion chiefs $400K ... etc
can you imagine the pensions these folks ended up with?
insane
"hows that 7.5% return pipe dream working mother fuckers...
ponzie out....."
Actually they have returned well over 7 1/2 for decades.
And there's no "e" in Ponzi.
Other than that you're right on the money...
Do you have a source for that 7.5% plus number?
"CalPERS vs Hedge Funds"
uh, is it OK to throw a hand grenade into the ring?
With 2% of the total and 20% of the gain.... I think these Hedges have a cofortable life...was it 4 bn at 7,5%... makes a decent profit for hedges...
wish someone would pay me 2% on a trillion or so aum. bill gross gets that to underperform the freaking 10y ust. who the fuck pays 2+% for that? Bueller? Bueller?
One of the only times I've truly been envious of another person's job was sitting behind someone on the Long Island Railroad to Manhattan. A guy was explaining his job to his friend and said, "Basically, I manage $100m portfolio for a very, very wealthy family. But, I put them in 30-year treasury bonds at 6%. They make $6m per year and I get 10%, or $600K - no work."
That was probably about 20 year ago and it's gotten a lot harder since then to make that same return. But hey, if he locked in 30 year terms back then and held on, he'd still be raking it in from the 19th hole, and the underlying value of the bonds would have skyrocketed (if they weren't bought back by the gov't.)
CALPERS would probably done better with a handful of index funds.
But that would'nt have justified their high salaries.
The HFRI or blomberg index shown here is probably a realistic proxy for where the S&P should be
There's no risk when taxpayers foot the bill in the end...
He who exits first exits best.
When risk finally shows up, how well do clients fare after the 2-20 fees? In the vast majority of instances, one can safely assume - not that good. Time to DIY without the fee's don't you say?
http://longtermtrendmonitor.elliottwavetechnology.com/
Just sayin', we've been outperforming this class of financial vultures for a micro-fraction of the fee's for years...