Hedge Funds Are An Even Worse Investment Than Before

Stocks Continue Downward Slide On Heels Of Yesterday's Extreme Fall
NEW YORK, NY - AUGUST 25: A trader is reflected in a market screen on the floor of the New York Stock Exchange (NYSE) on August 25, 2015 in New York City. Following a day of steep drops in global markets, the Dow Jones industrial average rallied early in the day only to fall over 200 points at the close. (Photo by Spencer Platt/Getty Images)
Spencer Platt—Getty Images

Hedge fund managers are some of the craftiest investors on the planet. But the benefits of their skills don’t, on average, accrue to the folks who actually invest in hedge funds.

That’s because after hedge fund managers take their hefty fees, investor returns, on average, don’t beat the market. As my colleague Roger Lowenstein wrote back in May, “The mystery of hedge funds is that their managers earn so much while (on average) their performance is so mediocre.”

He points out that over the past five years, hedge fund returns have averaged just under 5% per year, roughly one-third of the S&P 500’s performance over that same time. “Meanwhile, Institutional Investor reported that, in 2014—the sixth straight year of hedge-fund underperformance–the managers of 25 of the largest funds earned $11.62 billion, almost $500 million apiece,” writes Lowenstein.

But, for some reason, savers continue to pile money into these funds to their own detriment. And according to a report released on Friday from Hedge Fund Research—a hedge fund analysis firm—the performance of these pricey investment vehicles has taken a turn for the worse.

The HFRI fund composite index, which tracks global hedge fund performance, fell by 4.2% in the third quarter of 2015, the worst reading for the investment class since the third quarter of 2011.

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