2018 | (HF Annual Return %).īlue line: Barclays Hedge AUM Hedge-Fund Industry 2017 | (Hedge Fund Industry AUM $TN). Image Credits: David Tetenīlue bar: Hedge-Fund Research Institute (HFRI) Weighted Composite Index (HFRI FWD) Aug. Rolling 10-year returns have steadily declined across hedge fund strategies. small cap and 24.3% of global large-cap active equity mutual funds outperformed their passive competitors. Similarly, according to Morningstar’s Active/Passive Barometer, in the five years ended October 2021, only 26.4% of U.S.

The HFRI Index returned 18.3% annually during its initial 10 years from 1990 to 1999, but it returned just 3.4% annually over the 10 years to 2016. We’d argue that money managers playing a positive-sum game include those who focus on well-developed sectors for which indices are not readily available (e.g., private companies, frontier markets, cryptocurrencies) and/or nascent asset classes.įor example, hedge funds, on average, have underperformed on a net-of-fees basis in both U.S. In fact, it is mathematically impossible for the mean investor in a given sector to beat a low-cost index of that sector after expenses. Celebrity investors like George Soros can influence market preferences, but most of us don’t have that advantage.ĭiversity and inclusion are the most readily solvable issues, and the inevitable aging of the “pale, male and stale” leaders of the industry will create room for new entrants. However, few investors can directly impact the value of the underlying asset, except for private equity and venture capital investors with portfolio acceleration strategies. Your own investment’s value may change because of a change in the value of the underlying asset and/or market preferences. In asset management, each new money manager who generates alpha (returns above the passive benchmark performance) does so at the expense of other managers who underperform.

By contrast, most industries are positive-sum: If you eat a great steak dinner, it doesn’t imply that others have to eat hot dogs.

The asset management industry rarely delivers what it promises: AlphaĪlpha is a zero-sum game, according to Bridgewater founder Ray Dalio. Here are six main examples of just how peculiar this industry is. Industry players get richer and richer, while many investors see mediocre results after fees.Īsset management is a highly unusual and somewhat baffling industry. If investors complained about Wall Street 80 years ago, they’re howling now. The macro trends forcing change on the investment management industry.

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