WEST PALM BEACH, FL (www.hedgeco.net) – Burton Malkiel, professor of economics at Princeton University told the ICBI conference in Geneva that he is worried about future hedge fund returns. Malkielbelieves that hedge fund indexes, which track the global hedge fund returns, may be overstating the investment success of hedge fund managers.
Malkiel said, “Between 1998 and 2004 there has been enormous growth in hedge fund assets to about $1 trillion and since they are typically leveraged there buying power is much greater. Hedge funds often account for the lion’s share of trading on the New York Stock Exchange.� Malkiel said that future hedge fund returns might suffer due to the fact that too many hedge funds are chasing too few opportunities.
He also explained that he has, �a degree of skepticism about hyped returns? Am I worried too much money is chasing future returns? Yes,� arguing that the buyer should beware of such scenario.
Over the past years hedge funds have delivered superior returns to its investors while the global equity markets faltered. According to VAN Global hedge fund advisors, hedge fund offered its investors, �compound returns of 15.9 percent, compared with 5.9 percent for the MSCI world equities index and 2.3 percent for the S&P 500 stock index.�
Malkiel believes that hedge funds are often granted what he described as, �backfilling bias�; such bias often enabled them to outperform mutual funds according to him. He believes that between 1994 and 2003, such bias helped hedge funds achieve about 14.29 percent in returns, but without such bias their returns would be in the range of about 8.45 percent.
Malkiel also explained that there was a huge gap between the performance of the top hedge funds and those at the bottom. Such ratio according to him is wider than those of mutual funds. On manager selection, Malkiel said, “The manager selection risk is high. The performance of the best funds is outstanding.”
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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