The New York Times has an article about hedge funds. One interesting observation in it is that hedge fund investors want steady but more predictable returns and hedge fund are retooling their strategies to achieve it. How is that different from mutual funds. If you see the early years of mutual funds, many had great returns. Then they became asset gathering machines and you know rest of the story.
Still, some may be nostalgic for the way things used to be. The early adopters of hedge funds were rich people who liked big returns, and they often received them. But times changed. The rich people sat on the boards of their universities and suddenly endowments jumped on the hedge fund bandwagon. They did well. Then, after the market meltdown of 2000, hedge funds posted positive returns and pension funds started to flock in.
But pension funds don’t want chandelier swinging. They want good returns. Their managers do not want to lose their jobs for investing in hedge funds. So a lot of funds repositioned themselves to attract that money.
In a June note entitled “Hedge Fund Management at a Tipping Point?”, Byron R. Wein, chief investment strategist at Pequot Capital Management, wrote: “Hedge funds are today’s asset gatherers. To gather assets, hedge funds have come to believe that they need to reduce volatility, and a number of hedge funds have given up performance to achieve it.”