Sign up for our daily briefing
Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.
Catch up on the day's biggest business stories
Subscribe to Axios Closer for insights into the day’s business news and trends and why they matter
Stay on top of the latest market trends
Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.
Sports news worthy of your time
Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.
Tech news worthy of your time
Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.
Get the inside stories
Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Want a daily digest of the top Denver news?
Get a daily digest of the most important stories affecting your hometown with Axios Denver
Want a daily digest of the top Des Moines news?
Get a daily digest of the most important stories affecting your hometown with Axios Des Moines
Want a daily digest of the top Twin Cities news?
Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities
Want a daily digest of the top Tampa Bay news?
Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay
Want a daily digest of the top Charlotte news?
Get a daily digest of the most important stories affecting your hometown with Axios Charlotte
Illustration: Rebecca Zisser/Axios
Hedge funds are losing clients and money as they continue to deliver returns far worse than the broader stock market.
The big picture: Since the beginning of 2015, Americans' total financial assets have grown by nearly $11 trillion, Federal Reserve data shows, and less than 1% of that gain has been in hedge funds.
- Aside from a select few managers who continue to generate inflows, hedge funds as a whole have been losing money — an average $5.4 billion of outflows per year since 2015, data from research firm eVestment shows.
“The industry has been struggling," Peter Laurelli, eVestment's global head of research, tells Axios. "Since the end of 2015, quarterly flow has been negative in 10 of 14 quarters, including in each of the last four through Q1 2019."
What's happening: Last year the industry saw the fewest funds launched since 2000, with the number of funds shutting down exceeding the number of launches in both Q3 and Q4, according to estimates from Hedge Fund Research (HFR). That happened even as closures declined.
Driving the news: The S&P 500 has outperformed the average hedge fund by more than 100% since 2009, according to an Axios analysis.
- Putting $100,000 in an S&P 500 index fund with a fee of 10 basis points would yield $301,489 at the end of 2019's first quarter. That same $100,000 invested in the average hedge fund would return $174,787.
Hedge fund managers are also eating away at their clients' money with expensive fees.
- While fees for the average index fund have been fast approaching zero, with some firms even offering negative-fee products, hedge funds still charge an average of 1.45% management fees and 17% of returns for performance fees.
- Yes, but: Some top hedge funds with market-beating records have been able to increase fees.
The bottom line: Plunging share prices and volatility late last year were heralded as a moment for hedge funds to shine, but instead the industry saw the highest outflows since the fourth quarter of 2016.
- HFR President Kenneth J. Heinz, a strong backer of the industry, called 2018's performance "an industry milestone" and predicted a resurgence.
- In a note to clients last month, he changed his tune. “While investor risk appetite has returned in early 2019, the environment remains challenging."