Is the hedge fund industry being overwhelmed with new cash? Well, there's a case to be made that there just aren't enough investment ideas to sustain all this money. So what you end up with are more hedge funds that are all too correlated with main asset class indexes, which defeats the purpose. In a letter to clients, Ray Dalio, of Bridgewater Associates, notes that over the last 2 years, hedge funds were 60 percent correlated with the S&P 500, 67 percent correlated to the Morgan Stanley EAFE, and 87 percent correlated to emerging market stocks, according to the New York Times. Correlations are historically high with commodities and high-yield indexes. Of course, correlations among hedge funds are also high. This is not a huge deal really, until the markets head south. That's when hedge funds are supposed to really shine. We'll see.
Our take on this news: As stated previously in earlier blogs here, as well as our previously posted personal blogs. Who didn't see this day coming with all this new money coming into play? We all seen this the fast approaching. Tick... tock... tick... tock... tick... tock...
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