Over the past few years, clients have asked on occasion about the merit of including hedge fund investments in portfolios. At its extreme, I sat in the living room of a very wealthy client in North Carolina in 2007 and was politely dressed-down by a money center bank product salesman for not being bright enough or competent enough to understand the structure and merits of the fund that this salesman believed belonged in my clients’ portfolio. Frankly, then – as now – we just could not discern the value proposition of hedge funds based upon the risks, returns and the fees charged.
Apparently, many others are beginning to come to the same conclusion. News reports continue to chronicle the exodus of investment dollars from hedge funds with the latest being the New York City public employees pension fund, as reported by the April 14, 2016 Wall Street Journal.
Keep in mind that Wall Street is in business to create and sell product. Looking back over the years, portfolio insurance, indexed annuities, liquid alts, et. al. proved lacking in merit to us, but this did not keep the products from being sold to other unsuspecting investors. We continue to preach caveat emptor – buyer beware.
All comments and suggestions are welcome.
Bob Bilkie, CFA®