{"id":273114,"date":"2021-06-12T23:01:00","date_gmt":"2021-06-12T20:01:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/opinion-public-pensions-lose-on-hedge-funds-again\/"},"modified":"2021-06-12T23:01:00","modified_gmt":"2021-06-12T20:01:00","slug":"opinion-public-pensions-lose-on-hedge-funds-again","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/opinion-public-pensions-lose-on-hedge-funds-again\/","title":{"rendered":"#\n  Opinion: Public pensions lose on hedge funds \u2014 again"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a44382f99ffc\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a44382f99ffc\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/opinion-public-pensions-lose-on-hedge-funds-again\/#Brett_Arends\" >Brett Arends<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#<br \/>\n  Opinion: Public pensions lose on hedge funds \u2014 again<br \/>\n<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\">\n<\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\">\n<div class=\"article__side\">\n<div class=\"container--sticky not-active\">\n<div id=\"cx-next\">\n              <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0000301454\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       One of these days I\u2019m going to write about a bunch of retirees and future retirees who have just made a ton of extra money thanks to the financial brilliance of elite, exclusive, high-fee hedge funds.<\/p>\n<p> Today, however, is not that day.<\/p>\n<p>Instead, here comes <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.nbcnews.com\/business\/personal-finance\/private-equity-hedge-fund-firms-invested-pension-cash-retired-ohio-n1269885\" class=\"icon none\">more news<\/a> about a public pension fund allegedly missing out on billions of dollars because of hedge funds and other high-fee funds.<\/p>\n<div class=\"paywall\">\n       And <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.hedgeweek.com\/2021\/06\/02\/301241\/march-trading-profits-and-inflows-propel-hedge-fund-aum-record-usd407tn\" class=\"icon none\">the news<\/a> that retirement systems and other institutional investors continue to pour yet more money into the hedge fund racket\u2014excuse me, \u201cindustry.\u201c<\/p>\n<p>Oh, and reports that the industry is<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.fnlondon.com\/articles\/hedge-funds-book-largest-gains-since-1996-on-back-of-us-reopening-boom-20210608?link=TD_fnlondon_home.27995a643976ebba&amp;utm_source=fnlondon_home.27995a643976ebba&amp;utm_campaign=circular&amp;utm_medium=FINNEWS\" class=\"icon none\"> allegedly posting great returns<\/a> thanks to the reopening of the economy.<\/p>\n<p>Phooey.<\/p>\n<p>Here are the facts, although I don\u2019t expect them to break through the Reality Distortion Field <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>arently surrounding the folks who keep investing in hedge funds.<\/p>\n<p>Exclusive hedge funds that involve complicated and exotic financial maneuvers are performing worse this year than a basic portfolio involving five, or even two, Vanguard funds that anyone can buy.<\/p>\n<p>And this was true last year. And the year before that. And over the last five years. And over the last 10.<\/p>\n<p>And that\u2019s true even if we rely blindly on the hedge fund industry\u2019s own data\u2014a debatable move given the industry\u2019s disclosures.<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<p>Check out the simple chart above.<\/p>\n<p>On the left is the total return you\u2019d have made over the past 10 years if you\u2019d invested in Hedge Fund Research\u2019s \u201dHFRI Asset-Weighted Composite Index\u201c\u2014the most widely used basic \u201cindex\u201d of hedge fund returns.<\/p>\n<p>The bar in the middle shows what you\u2019d have made if you\u2019d invested instead in a basic portfolio of five Vanguard (or comparable) index funds: Vanguard Total (U.S.) Stock Market Index Fund<br \/>\n        VTSMX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/202876707\/realtime\" class=\"positive\">+0.32%<\/bg-quote><span>,<\/span><br \/>\n       (International) Developed Markets Index Fund<br \/>\n        VTMGX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/200109308\/realtime\" class=\"positive\">+0.12%<\/bg-quote><span>,<\/span><br \/>\n       Emerging Markets Index Fund<br \/>\n        VEIEX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/205715973\/realtime\" class=\"negative\">-0.17%<\/bg-quote><span>,<\/span><br \/>\n       Inflation-Protected Securities Fund<br \/>\n        VIPSX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/207983017\/realtime\" class=\"negative\">-0.34%<\/bg-quote><span>,<\/span><br \/>\n       and Total Bond Market Index Fund<br \/>\n        VBTLX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/210422528\/realtime\" class=\"negative\">-0.09%<\/bg-quote><span>.<\/span>\n      <\/p>\n<p>On the right is what you\u2019d have if you\u2019d gone for an even simpler two fund portfolio: Vanguard Total World Stock<br \/>\n        VT,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/202040789\/composite\" class=\"positive\">+0.18%<\/bg-quote><span>,<\/span><br \/>\n       which is an exchange-traded fund, and the inflation-protected bond fund above.<\/p>\n<p>These aren\u2019t chosen with the benefit of hindsight. The standard benchmark investment portfolio has traditionally been 60% stocks, 40% bonds. So the two-fund portfolio is about as basic as you can get. As for the five fund portfolio? It\u2019s the one I outlined 10 years and two months ago here, in another article about dismal hedge fund performance. <\/p>\n<p>Meanwhile, so far in 2021, the hedge fund index is up just 6%. The five-fund portfolio is up 7% and the two-fund portfolio 8%.<\/p>\n<p>The results are much the same even if you compare hedge funds to this much lower risk 10-asset portfolio, which I wrote about almost exactly seven years ago. Returns from that portfolio since then? About 55%. Hedge fund returns? Er\u202627%. Almost exactly half.<\/p>\n<p>(Incidentally, if I wanted to use hindsight, I\u2019d compare the hedge funds to a U.S.-only portfolio, because U.S. stocks have boomed this decade. So the Vanguard Balanced Index Fund VBINX, a <em>one<\/em>-fund portfolio that consists of 60% U.S. stocks and 40% U.S. bonds, has risen 160% in the past decade. That\u2019s <em>more than three times the returns <\/em>you\u2019d have earned from hedge funds.)<\/p>\n<p>There\u2019s no great mystery to this. Hedge funds typically charge about 2% annual fees, plus 20% of any profits.<\/p>\n<p>I remember sitting down a decade ago and doing the math. I was visiting the hedge fund industry\u2019s annual jamboree at the time\u2014appropriately enough in Las Vegas, where the house always wins.<\/p>\n<p>A fund\u2019s investments have to beat the stock and bond markets by about 50% a year just to cover the vig.<\/p>\n<p>Oh, and if a hedge fund actually knows how to do that\u2014like <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.amazon.com\/Man-Who-Solved-Market-Revolution-ebook\/dp\/B07P1NNTSD\" class=\"icon none\">Renaissance<\/a>\u2014why would they bother cutting you in anyway? They\u2019d just invest their own money.<\/p>\n<p>Hedge-fund managers make us, the middle-class American taxpayers, two-time suckers.<\/p>\n<p>First they leech off us through the public-sector pension funds, which pour money into hedge funds year after year for no discernible reason. Most public pension funds are in the red, which means ultimately they\u2019re going to be making up the difference by picking the pockets of you-know-who.<\/p>\n<p>Then the hedge-fund managers barely even pay any tax on their loot either. Thanks to the \u2018carried interest loophole,\u2019 a legal tax treatment whose more accurate names would be unprintable, they pay very little tax down the road and almost nothing today.<\/p>\n<p>You see how this works? They take our tax dollars, and they don\u2019t even pay in. It\u2019s like we\u2019re an occupied country and we\u2019re paying hedge-fund managers tribute.<\/p>\n<p>The key thing to understand about hedge funds is that they are fabulous vehicles for making people rich \u2014 so long as you\u2019re a fund manager, not an investor.<\/p>\n<p>The problem isn\u2019t that it\u2019s impossible for hedge funds to beat the market. It\u2019s that they can\u2019t beat the market in aggregate, after fees. And, just as importantly, that any hedge funds which can beat the market after fees are not going to take outside money.<\/p>\n<p>But hope springs eternal. As P.T. Barnum might have said, there\u2019s a hedge-fund investor born every minute.<\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>      <span>By<\/span><\/p>\n<div class=\"author  hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Brett Arends\",\"subhead\":\"The Wall Street Journal\",\"list\":[]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Brett_Arends\"><\/span>Brett Arends<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B20C05575-04D4-B545-7499-8EAAAE528495%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Opinion: Public pensions lose on hedge funds \u2014 again &#8221; One of these days I\u2019m going to write about a bunch of retirees and future retirees who have just made a ton of extra money thanks to the financial brilliance of elite, exclusive, high-fee hedge funds. Today, however, is not that day. Instead, here&#8230;<\/p>\n","protected":false},"author":1,"featured_media":273115,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-273114","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/273114","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=273114"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/273114\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/273115"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=273114"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=273114"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=273114"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}