At first glance, it certainly seems like hedge funds are enjoying a post-crash renaissance, with the industry's total assets under management projected to climb above pre-crisis levels later this year.
But upon further review, hedge funds still aren't delivering as much bang for the buck. Robert Bloink, a former senior attorney in the IRS Office of Chief Counsel - and expert in wealth transfer techniques - points that hedge funds aren't beating the markets like they were prior to crash.
Citing data from Hedge Fund Research, Bloink noted that hedge funds averaged yearly earnings of 20 percent in 2009 and 10.3 percent in 2010, lagging behind the S&P 500, which averaged earnings growth of 26.5 percent and 15.1 percent, respectively, for the same period.
From Advisor One:
The fact that the market is gaining steam doesn't necessarily mean profiting from hedge funds will be as easy as it was during pre-crisis levels. Stifling new regulations stemming from the financial crisis are increasing expenses, with most fund managers now being required to register with the SEC and funds being required to report extensive information to the SEC. Also, post-crisis practices at funds are decreasing hedge fund risk at the expense of returns.As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio
Prior to the financial crisis, hedge funds often were using extreme leverage to multiply returns. While this dramatically increased the hedge funds' returns, it also increased their risk. Once the financial crisis hit, many funds collapsed under the weight of their debt, leaving investors empty handed.