What’s Going On Here?Data from Bloomberg out on Tuesday showed a record number of hedge funds are turning down new investors – but honestly, it’s not you, it’s them. What Does This Mean?It might sound odd that a hedge fund would pass up on more money, but there are a couple of reasons it actually makes sense. For one thing, most funds only want to invest a set amount of cash in each of their strategies. If they have more than they need, they’ll either hold more in cash – where it’s not doing any work – or invest in assets that don’t actually meet the strategy’s goals. For another thing, some hedge funds pride themselves on their feeling of exclusivity, and they might simply be closing their doors to keep the riffraff at bay. Why Should I Care?For markets: This cloud has a silver lining.
Hedge funds have had a tough time of it since the global financial crisis, with nearly 12,000 of them closing their doors between 2008 and 2020. That’s because hedge funds – which aim to profit whether things go up or down in value – thrive on volatility, which has been hard to come by in that relatively unspectacular period of time. Last year’s antics might’ve provided some welcome relief, then: the pandemic drove a significant spike in volatility, and hedge funds’ profits along with it.
For you personally: Passive is the way to go.
Hedge funds tend to be reserved for major institutional investors with money to spare, so you might be disappointed to hear that the industry’s profits are mostly off limits. But you might not be missing out on much: consider that if you’d invested in a (far more affordable) exchange-traded fund tracking the key US stock market index when it was at its lowest point in March 2020, you’d have made returns of nearly 95% since then (tweet this). That’s a return any hedge fund would love to boast… | 