The wave of anti-hedge fund sentiment that we have predicted ever since 2013 – a direct consequence of centrally planned markets in which central bankers have become marketwide Chief Risk Officers, who intervene every time there is even a 5% drop, and have made risk hedging moot – has finally been unleashed: “in less than seven days, hedge funds have been subject to a three-pronged attack by some of the biggest names in finance,” Bloomberg writes.
As a reminder, over the weekend, none other than folksy crony capitalist billionaire, Warren Buffett unloaded what he called a “sermon” about hedge funds and investment consultants, arguing that they are usually a “huge minus” for anyone who follows their advice, adding that passive investors can do better than “hyperactive” investments handled by consultants and managers who charge high fees.
This followed just days when a member of the very group that was bashed by Buffett, Dan Loeb, said that the past few months have been a “catastrophic” time for hedge funds adding that there is “no doubt that we are in the first innings of a washout in hedge funds and certain strategies.”
Then last night, another prominent hedge fund billionaire, Steven Cohen, whose former hedge fund pleaded guilty to securities fraud in 2013, said he’s astounded by the limited number of skilled people in the industry. “Frankly, I’m blown away by the lack of talent,” Cohen said at the Milken Institute Global Conference in Beverly Hills, California, on Monday. “It’s not easy to find great people. We whittle down the funnel to maybe 2 to 4 percent of the candidates we’re interested in. Talent is really thin.”
According to Bloomberg, Cohen said the industry has “gotten crowded” with too many managers following similar strategies. He said fund firms seem to think they can hire skilled people and “magically” generate returns.
Cohen said one of his biggest worries last year was that his firm might become the victim of an indiscriminate market selloff as other funds endured troubles and reduced risk. He said his worst fears were realized in February when U.S. stocks fell to an almost two-year low and his firm lost 8 percent.
But the real threat to hedge funds is neither “catastrophic” returns, nor a “wash out”, nor the lack of investing talent (surely Cohen can just turn to Twitter where nobody ever loses paper money while “trading”), but what investors and LPs in what has been a dying product ever since central banks decided to go activist on the stock market, would do.
It is here that the problem is suddenly becoming very acute.
For a troubling indication that the pain for hedge funds is only just starting, Chris Ailman, who runs investments at the $187 billion California State Teachers’ Retirement System, or CALSTRS, said in a Bloomberg Television interview from the Milken conference that the hedge fund industry’s two-and-twenty fee model is “broken” and “off the table” for large institutional investors.
His statement follows a vote last month by New York City’s pension for civil employees to exit hedge funds, determining that they didn’t perform well enough to justify high fees.
And then the latest blow to the suddenly struggling industry came overnight from none other than the firm which started the bailout regime, AIG, which following its earnings report announced that the insurer – burned by losses on hedge funds – has submitted notices of redemption for $4.1 billion of those holdings.
“As of today, we have received $1.2 billion of proceeds from those redemptions,” Chief Financial Officer Sid Sankaran said Tuesday in a conference call discussing results at the New York-based insurer.
For those wondering why the smart money has been selling, or rather forced selling, stocks for a record 14 weeks even as the market has soared…
… the pattern of suddenly surging redemptions may provide a much needed hint.
The post In Latest Blow To Hedge Funds, AIG Redeems $4 Billion; CALSTRS Says “2 And 20” Model Is “Off The Table” appeared first on crude-oil.top.