Hedge fund performance in 2004 may go down as the worst return seen by the hedge fund industry since such records were widely watched by investors. Jonathan Hook, chief investment officer of BaylorUniversity, told attendees at the International Centre for Business Information Conference {ICBI} that hedge funds may continue to struggle in future due to the weight of new assets hitting theindustry.
Mr. Hook said, “There seems to be a supply and demand imbalance at this point with too much money flowing into spaces where the opportunity set is not as robust as it has been. Not a lot of things look really good right now�. Hook also said that hedge funds need price volatility to make money in the markets, but such volatility has been lacking in the markets in 2004, in part due to sluggish stock markets, added to an unexpected fall in bond yields, and the disappearance of new bond issuance.
Hook said billions of dollars in assets have been poured into hedge fund vehicles by College and University endowments. The Baylor University endowment fund which he manages holds a total $700 million in assets, about 30% of such portfolio are dedicated to alternative investments including hedge funds and private equity. He also noted that such exposure will likely be increased to 40% in 2005. According to Hook, it has been very difficult to find promising hedge fund sectors, Hook said, “We are probably trying to find a niche. It is forcing us to take a lot of time and spend effort to find which managers we would like to add�.
Another endowment manager, Michael Hennessy, vice president and co-founder of UNC Management Co, part of the University of North Carolina, also shared Mr. Hook�s views on the difficulties facing hedge fund managers in their effort to deliver alpha to their investors. Hennessy said, their main worry is whether hedge funds will �give us the return that we need? If returns start narrowing between traditional investments and hedge funds, then some constituents (clients) may put more pressure to use less hedge funds,” according to him. The university of North Carolina endowment fund manages about $1.2 billion of which 60 percent of assets are devoted to hedge fund managers
Paul Oranika
Editor-in-Chief
HedgeCo.Net
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