Hedge fund doomsayers have long warned about big investors yanking cash, shrinking the high-fee industry.
To that, hedge funds might as well respond: “Haters gonna hate.”
It seems like even when investors are pulling out, they’re putting that money right back into other hedge funds.
That’s according to a Barclays survey released this week of 340 hedge fund investors managing $8 trillion.
Nearly half of the investors that are redeeming from their hedge funds are reallocating that money to other funds, the survey said. And nearly a third are doing nothing with their hedge fund allocations at all.
Why are investors staying loyal to hedge funds? Here’s Barclays:
“One of the most important reasons is that it is difficult to find an alternative with similar risk / return characteristics. And when the risk-adjusted returns are combined with the low correlation they tend to have, the impact on investors’ portfolios tend to be positive. Indeed, according to our analysis in Figure 13, a majority (55%) of HFs, even in a year like 2015 where HFs did not perform particularly well, would have been additive and improved the efficient frontier of the 60 / 40 portfolio. Thus while performance may have seemed poor on a stand-alone basis, there appears to be a role for HFs in investors’ portfolios.”
That’s not to say that redemptions aren’t concerning. Some big investors, like pensions, are pulling out, citing hedge funds high fees and underperformance. Around one in five investors are reducing their hedge fund allocation, according to the survey, with many putting their money in to private equity instead.
Investors yanked nearly $21 billion from the $3 trillion industry in June — the first month that even big funds that performed well last year saw money flow out, according to eVestment, a data tracker.
Some in the industry don’t think that’s necessarily a bad thing.
“It seems like the industry is about to shake itself out,” Jeff Hudson, a partner at Cedar Ridge Partners, said in a recent chat with Business Insider. “It’s probably overdue.”