Are hedge funds the future?

With equities hitting record levels and government bond yields still in the cellar, where can investors go to get the returns they need to fund their retirements, pay for college, or just become financially secure? Some say the future is in hedge funds—those lightly regulated investment pools that can go long or short, can use leverage (or not), and that utilize derivatives of various sorts to take all kinds of positions.

Sometimes these bets work out fabulously, as when John Paulson famously bet against the sub-prime market in 2007 and came up big. But sometimes they fail: witness Paulson’s 65% loss so far this year in a gold fund. Ouch!

In theory, hedge funds should be able to add value for investors—using massive fees to pay big bonuses to talented managers who can use the funds’ flexibility. But in practice these funds largely bet against each other, and investors still pay their two-and-twenty fees no matter how they fare.

In the end, hedge funds will survive, because hope for the big win springs eternal among investors. But their managers aren’t magicians. The bigger these funds get, the harder it is beat the market.

Douglas R. Tengdin, CFA

Chief Investment Officer

By |2013-07-12T09:55:34+00:00July 12th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment