Please ensure Javascript is enabled for purposes of website accessibility

Hedge Funds Are Getting Stiff-Armed in a Renewed Quest for Cash

By The Daily Upside - Jan 5, 2022 at 9:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hedge funds were for decades among the titans of Wall Street, now they're struggling to even match the market. The latest data shows one of the...

For more crisp and insightful business and economic news, subscribe to The Daily Upside newsletter. It's completely free and we guarantee you'll learn something new every day.

Hedge funds were for decades among the titans of Wall Street, now they're struggling to even match the market.

The latest data shows one of the financial industry's most storied — and in some quarters reviled — sectors is struggling to raise cash, after a year of getting pushed against the ropes by market volatility.

Ransacked by Redditors

Hedge funds — whose selling point is they devise complex stock picking strategies to maximize returns — have watched clients walk one by one out the door in recent years, drawn to the promise of higher gains from private equity and private debt funds (or also just plain old benchmark indexes). Last year from January to November — the latest period where figures are available — they gained a mere 8.7% on average, according to data firm HFR. That's good enough for a third straight year of gains, but brutal compared to the S&P 500 index's 24% return in the same time period.

They've also proven vulnerable to sharp volatility. Retail investors co-ordinating on Reddit's infamous WallStreetBets community last year succeeded at knocking billions off of some funds last year by targeting their short positions — major fund Melvin Capital famously needed a bailout to survive. Others were clobbered when Beijing cracked down on private education companies. That's made raising cash a lot harder:

  • Investors put $24 billion into hedge funds, a $4 trillion industry, from January to September 2021 according to HFR — compared to the $110 billion they've taken out in the last three years.
  • Some firms have even waved the white flag — Intrinsic Value Investors, a $1.3 billion firm, and hedge fund DSAM both told clients in recent months that they're returning their money (White Square Capital also shut down in the summer, tanked by Redditors).

Inflation Hurts: One of the biggest funds in the world, Rokos Capital lost 25% through the end of November after getting crushed on the wrong side of investors' bets that central banks would increase rates to curb inflation.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.