Gary Allen on Business – Sunday, February 15, 2015 – Podcast Now Available

Want to Get Rich?

Don’t Invest in a Hedge Fund, Start One!

Hedge Fund hunchIn my opinion, hedge funds are one of the worst investments offered to investors. They are full of promise and sound so sophisticated, but in the end, they often deliver poor results and they always have, in my opinion, very high fees. Over the years on my radio program, I have railed against hedge funds on a regular basis. I have never understood the logic nor the math behind hedge funds. Even the most sophisticated of investors (think California Public Employees’ Retirement System, (CalPERS)) have at one time or another been mesmerized by the story of hedge funds.

The CalPERS hedge fund story came to an end last year (2014), when the giant retirement system said no more.  Last year, they announced a termination of all of their investments in hedge funds after the conviction of former CEO, Fred Buenrostro , for hundreds of millions in fraud involving the funds. Beyond the salacious scandal was a bigger problem with the overall investments in the hedge funds. They failed to deliver on their promise. For example, CalPERS paid $135 million in hedge fund fees in the fiscal year ending June 30, 2014 for their portfolio of hedge fund investments. Those investments earned a total of +7.1% during the period. However, over that same period of time, CalPERS earned +18.4% from its other investments. On top of that, they paid a small fraction of the fees for the conventional investments. This under performance by hedge funds has been a problem over the past decade not just for CalPers but for investors overall. The returns on hedge funds have lagged as a whole.

On the program this week, I provide my argument for why I don’t like hedge funds. I think they are a terrible investment for people. The reality is the people who really make out with hedge funds are the managers and the promoters, not their investors. This is the classic case of the manager doing very well, while the investors not so much. But you can make up your own mind on that opinion. I hope you enjoy the program.

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