**The Super Rich Give Hedge Funds the Cold Shoulder**
Michael Sonnenfeldt, known as the gatekeeper for the super-wealthy, has delivered a sobering verdict: hedge funds are dead as an investment option for those with the greatest resources at their disposal.
Investing Preferences Shift Dramatically
Sonnenfeldt’s assertion is rooted in startling statistics from his Tiger 21 network. Once a favorite asset class, hedge funds have seen their allocation among Tiger 21 members plummet from a hefty 12% to a meager 2% over the past 16 years.
In place of hedge funds, savvy investors are turning their attention to alternative investments. Private equity now reigns supreme, commanding 29% of Tiger 21 members’ portfolios, followed closely by real estate’s 27% share. Public equity holds a sizeable 19%, while cash comprises the remaining 12%. Hedge funds barely register at 2%.
Hedge Funds: A Costly Underperformer
Sonnenfeldt attributes this stunning reversal to the dwindling returns offered by hedge funds. “Investors could get a similar exposure with less fees by investing in index funds, or going into private equity,” he explains.
He points to the performance of index funds like QQQ and SPY, which outpaced hedge funds’ meager 13.3% return in 2023 with an impressive 55% and 25% growth, respectively.
A Decade-Long Decline
Sonnenfeldt’s declaration echoes the broader trend that has plagued hedge funds for over a decade. “In a low-interest rate environment, the fixed fees became less attractive, and hedge funds could no longer deliver exciting returns,” he notes.
Investors Ditch Hedge Funds
The data from investment house Preqin corroborates the shift away from hedge funds. Between the last quarter of 2014 and the end of 2023, the industry has recorded staggering net outflows of more than 7.3 billion, indicating a widespread exodus of investors.
A Wave of Discontent
Preqin highlights a growing dissatisfaction among investors, who find their hedge fund allocations failing to meet their long-term expectations. This discontent is fueling the industry’s ongoing malaise, as investors continue to redeem their capital.
Data sourced from: cnbc.com
