Be Grateful You Can’t Afford to Invest in Hedge Funds.

larry swedroe

Larry Swedroe is an excellent commentator and expert on investing. He writes articles for etf.com. He’s also a big believer in index fund investing, just like I am. He recently published an article discussing how poorly hedge funds have performed over many years and how worker pension plans, governments and individuals who have invested with them have lost out on billions of dollars because they bought in to the idea that these pros could beat plain old index funds.

Here is a summary of the findings he uncovered:

Hedge fund net return rates lagged behind total pension fund returns in nearly three quarters of the 88 total fund years reviewed, costing the group of pension funds an estimated $8 billion in lost investment revenue.
The 11 pension funds paid 7.7 times more in fees to managers for their hedge fund investments than for a same-sized total fund portfolio.
Hedge funds failed to deliver significant benefits to any of the pension funds reviewed.

His conclusions on why large pension plans continue to use hedge funds:

Can it be that hype, hope, marketing and perhaps some free tickets to sporting events and golf outings have triumphed over wisdom and experience? (Note: That’s a rhetorical question.)The saddest part is that, ultimately, it’s the taxpayers (in the form of higher taxes) and possibly even the plans’ beneficiaries (in the form of reduced benefits) who will suffer from poor decisions made by pension plan trustees

You can read the whole article here:

http://www.etf.com/sections/index-investor-corner/swedroe-hedge-fund-infatuations?nopaging=1

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