The evidence is slowly growing that the hedge fund boom is starting to slow. As hedge fund performance muddles along it becomes more difficult for investors to justify increasing their hedge fund positions. Especially in light of the seemingly daily scandals and high fees.
According to a study by Commonfund, college and university endowments have stopped expanding their commitment to hedge funds as a percentage of their overall portfolios. (via Hedgeworld.com)
Liz Moyer at Forbes.com asks the question: Why hedge funds? Moyer compares the weak performance of hedge funds against their more staid, mutual fund competition. According to one calculation only 49% of hedge fund managers beat the S&P 500.
John Kimelman at Barrons.com notes that the exclusive world of hedge funds is getting smaller as a number of innovative products have been designed for the broader investing public. A number of analysts view the hedge fund of fund as doomed, as multi-strategy hedge funds compete head-to-head without the disadvantage of double fees.
One little noticed fact of most hedge fund agreements include limitations on the early withdrawl of their capital. Henny Sender at the Wall Street Journal notes that one of the biggest hedge funds, Citadel Investment Group, has imposed a penalty on one investor who wanted to withdraw their entire investment.
Hedge funds are still the cutting edge investment vehicle of choice. However, the seemingly inexorable upward march seems to have stalled. Hedge funds need some increased market volatility to break out of these doldrums.