Wealthy investors who thought a few years ago that brainy hedge fund managers would show them the money have shed their rose-colored glasses.
Individuals are no longer enamored with the funds, and for good reason. Last year, hedge funds tracked by Hedge Fund Research gained just 7 percent on average, while the Standard & Poor’s 500 provided a 16 percent total return. In 2011, hedge funds lost 8 percent, and as a group they have let individuals down every year since the 2008 financial crisis.
Rather than being the moneymakers investors imagined, in 2008, hedge funds lost 26 percent, according to Hedge Fund Research. That was better than the 38 percent decline in the stock market but a shock for individuals who never expected to lose money after paying tremendous fees for the supposedly elite of the investment industry.
Starting in 2000, hedge funds became the rage as institutions like Yale University’s endowment used them to make money when the stock market plummeted 49 percent over a 30-month period. The popular notion was that hedge funds were run by investment managers so talented that they would steer client money through the cruelest of stock markets and beat everyday stock and bond fund managers in good times and bad.