Wealthy Investors Cling to Hedge Funds
Despite all the bad press about hedge-fund performance recently, a Bank of America survey found that hedge funds are still popular with the rich.
The survey, of 400 clients with $3 million or more in investible assets, found that more than half of those with hedge-fund investments were ?satisfied? with the funds’ performance.
That compares with an approval rating of just 30% for traditional investments such as stocks and bonds. Other alternatives also fared better than stocks and bonds: a 41% approval rating for venture capital, 41% for real-estate, and 35% for private equity.
What gives? Haven?t hedge funds had one of the worst years in history?
According to Hedge Fund Research, the hedge-fund industry was down 3.2% for the month through July 24. That?s the worst July performance since the research firm starting tracking the business in 1990, and the worst monthly performance since 2000.
Yet stocks have fared even worse. The S&P is down 16% for the year, and the Dow is down about the same. Hedge funds also offer a greater opportunity to play the downturn with distressed funds.
So the poor performance of hedge funds beats the horrid performance of stocks. The survey also found that investors who had held hedge funds the longest were the most satisfied. Those who had been investing in hedge funds for 10 years or more were twice as likely as those with less experience to be ?extremely satisfied? — probably because they had all those heady days of double-digit returns to factor in to their assessment.
The critical question is whether the rich will keep putting money into hedge funds. Funding for new funds is drying up: In the U.S. the number of new funds has dropped by half. It?s about the same in Europe.
As I wrote earlier, wealthy investors have trimmed their holdings of alternative investments — a category that includes hedge funds, private equity, etc. According to Merrill Lynch and Capgemini, financial millionaires had 9% of their portfolios in alternatives at the end of last year, down from 11% in 2006.
I?d also imagine the wealthy hedge-fund investors who can?t get their money out due to lock-ups are also less than ?satisfied.?
Still, in today?s stock market, losing 3% starts to look pretty good.
(Photo via Wikipedia.)