It’s Not Just About Rate Of Return
One common belief is that because hedge funds have under-performed equities they are not worth the fees. This misunderstands the role of hedge funds by focusing on rate of return to the exclusion of all other desirable return characteristics:
- You are paying a hedge fund for positive returns that are NOT the S&P 500:
- not correlated to the S&P.
- without the S&P’s tail risk.
- without the S&P’s drawdown profile.
- Hedge funds and managed futures smooth your equity curve reducing sequencing risk.
- If you are managing a pension plan, endowment, or foundation, you are in this for the long haul. On average, hedgies have under-performed for a couple of years, while the market has out-performed. That’s how diversification works!