The improbable must-have holding of 2012 will be hedge funds. The typical fund has lost 4 percent this year through November, according to Hedge Fund Research. But that poor performance is not deterring institutional investors.
Eleven months into 2011, even the Standard & Poor’s 500-stock index has managed a small gain when dividends are factored in. A bond index tracked by HFR returned nearly 8 percent. The average hedge fund is a loser by comparison.
One problem is that the superior analysis that hedge funds claim to offer has turned out to be almost useless. Government actions — from Europe’s inconclusive summit meetings to Washington’s brinkmanship — and knee-jerk reactions by investors have overwhelmed the fundamentals focused on by pickers of stocks and other assets. Ingrained habits, like selling losing positions, have proved disastrous. Some hedge funds have been smart or lucky. Others, including big names like John A. Paulson, just got the year badly wrong.
More than the usual number of pension fund managers and the like are disappointed with hedge fund performance, according to a survey by Preqin, a data provider for the industry. But the number intending to hand over still more money for hedge funds to manage far outweighs those planning to withdraw cash. It’s a bit of a paradox. The rationale is that they desire yearly returns of, say, 8 percent….
Find out more at http://www.nytimes.com/2011/12/23/business/the-lure-of-the-hedge-fund-despite-poor-performance.html?_r=1
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