The hedge fund industry has been stereotyped as swashbucklers and risk takers a bit by the media, which has really glorified how much money executives make. But Business Week Online notes some critics say the industry has become far too staid. If mutual funds can be criticized for aping indexes, hedge funds can be hit for becoming too much stock funds. People have noted the rising correlation among hedge fund returns--and the lower returns. Last year, hedge funds returned 13 percent on average, while the S&P 500 returned 13.5 percent. Big customers are not happy about this. They invested for big gains, which is not what they are getting. They could get the same return in index funds. The hedge funds will be quick to note that private equity funds are similarly muted.
Our take on this news: With all the money flowing into these funds, the end is near on decent returns. Too much flowing into deals that won't work out in the years ahead. Whenever there is too much money out there, bad deals will happen. They glory years are over in our opinion.
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