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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."

Go deeper

The ransomware pandemic

Illustration: Aïda Amer/Axios

"We are on the cusp of a global pandemic," said Christopher Krebs, the first director of the Cybersecurity and Infrastructure Security Agency, in Congressional testimony last week. The virus causing the pandemic isn't biological, however. It's software.

Why it matters: Crippling a major U.S. oil pipeline this weekend initially looked like an act of war — but it's now looking like an increasingly normal crime, bought off-the-shelf from a "ransomware as a service" provider known as DarkSide.

Hollywood's wakeup call

Illustration: Sarah Grillo/Axios

Decades of failures around diversity and inclusion finally caught up with Hollywood Monday, when NBC made the unprecedented decision not to air the Golden Globes next year following backlash against the group that hosts the show.

Why it matters: NBC has been airing the event exclusively for decades. Its decision to pull back speaks to how big the backlash against the Hollywood Foreign Press Association (HFPA) has become.

Erica Pandey, author of @Work
51 mins ago - Health

There's a frenzy for summer school, but it may not be enough

Illustration: Annelise Capossela/Axios

Kids across the country have fallen behind after more than a year of interrupted, unstable and inequitable virtual school. And they'll need to go to summer school to catch up.

Yes, but: It's not that easy. Kids are demoralized, teachers are exhausted, and it'll take more than one summer to fix the pandemic's damage.

You’ve caught up. Now what?

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