A couple weeks old, but a good one:
There is no doubt that hedge-fund managers have been good at making money for themselves. Many of America’s recently minted billionaires grew rich from hedge clippings. But as a new book by Simon Lack, who spent many years studying hedge funds at JPMorgan, points out, it is hard to think of any clients that have become rich by investing in hedge funds (whereas Warren Buffett has made millionaires of many of his original investors). Indeed, since 1998, the effective return to hedge-fund clients has only been 2.1% a year, half the return they could have achieved by investing in boring old Treasury bills.
Insofar as hedge fund managers are just running a scam where one class of rich people rips off another class of rich people, I’m not sure there’s anything systematically problematic about this. But a large share of the money invested in hedge funds seems to come from foundation endowments and pension funds. That in turn makes me wonder to what extent some of the dysfunctional aspects of the financial system can be traced back to dysfunctional governance of those institutions.
The big picture point here is that investment strategies, on average, can’t outperform the economy as a whole over the long run. People find that disappointing and are always excited about the news that one asset class or another has done much better than that over some medium-range period of time. But by the time the word is out that stocks are a great investment, or that hedge funds can get you 8 percent returns, or whatever else it is it’s probably already too late. Hedge funds had their best moment before they got famous. Once everyone’s rushed in, it’s too late.