New York (HedgeCo.Net) Over the course of the last few weeks there have been a number of articles and quotes about the alternative investment industry that may be a bad sign for the market. The roaring bull market of the last six-plus years seems to be causing investors to question the need for hedge fund strategies.
First there was the article in the Wall Street Journal that we mentioned in last week’s article Pension Funds Behaving Like Individual Investors. If you missed it, here is the quote that is at the heart of the issue:
A recent Wall Street Journal article included a quote from Jim McKee, head of hedge fund research at pension fund advisory firm Callen Associates. “There’s certainly regret, the last five years have been disappointing for pensions invested in hedge funds,” stated McKee.
After that, an article from Bloomberg showed that the flow of capital into liquid alternatives has slowed considerably in 2015 and are down to levels not seen since 2008. In 2014, liquid alts saw a net inflow of $39 billion and that was down from a record-breaking $96 billion in 2013. According to the article, inflows for 2015 are a paltry $1.2 billion through the end of May.
We also had a quote from noted short seller Bill Ackman in the New York Times stating that he would “have to think very, very hard before another public short,” adding, “it’s not worth the brain damage.” He went on to add that short selling can be “an incredibly lonely proposition.”
Yet another notorious short seller has added a long-only fund to his family of funds. Jim Chanos is the founder and president of Kynikos Associates and his funds are well known for capitalizing on stocks that are moving down. His most famous short sell was Enron. Now the tables have turned and Chanos is trying to capitalize on stocks that are moving higher.
From a contrarian point of view, all of these developments have to raise a red flag about the overall market. Pension funds regretting their hedge fund investments, individual investors backing off their alternative investments, noted short sellers opening long-only funds and questioning their own sanity.
Sure it took one of the strongest and most enduring bull markets in history to get us to this point, but all of the pessimism toward hedge fund strategies and short selling could be the ultimate sign that the bullish phase has run its course.
Rehashing all of these stories reminds me of a quote from Humphrey B. Neill in his book, The Art of Contrary Thinking “The crowd is right during the trends but wrong at both ends.” Humphrey B. Neill.
Rick Pendergraft
Research Analyst
HedgeCoVest
