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Are Hedge Funds Ever Expensive?

In Pursuit of Value

Yesterday I sat through presentations at a conference on alternatives sponsored by Investment News. The participants were largely financial advisers looking for alternative sources of investment income for their clients’ portfolios given the poor prospects in fixed income currently. This is everybody’s problem and I certainly can sympathize since we do the same thing ourselves every day.

I was struck by one presentation from a large consulting firm. They produced the familiar chart showing long term returns on hedge funds compared with other asset classes and used data going back as far as 1990. No surprise that they recommend a sizeable (20-30%) allocation to hedge funds. There was no consideration given to the miniscule size of the industry back in the early 90s when returns were good, so in their statistical analysis each year receives equal importance in arriving at their result.

It occurred to me that this type of promotion…

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