Fortune published a great interview with Cliff Asness a few months ago, in which he breaks down hedge funds, recent performance, and why the critics are both right and also dead wrong:
I selected some quotes I found illuminating:
Have hedge funds been a disappointment? Only to people who believe that they should be fully invested in the stock market when the stock market is up, and fully out when the stock market is down. I’ve yet to find anyone who can do that. I’ve yet to actually find a hedge fund manager who claims to be able to that.
Asness highlights something we see on occasion–investors want assets that go up, but never come down. And as Asness points out, this is impossible!
Plenty of hedge funds charge too much. I think they should be fully hedged. I think that there’s no reason that they run to about 40% (what’s called) “net long,” meaning 40% exposed to the market, so you’re not getting as much diversification, and it effectively makes their fees even higher, because you’re paying 40% for something you really should go to my friend Jack Bogle and get for almost nothing.
Again, a basic point, but an important point–we need to focus on what we can get for free!
As always, Mr. Asness’s candor is refreshing.
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