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Hedge Fund Performance for 2010

Posted by Brent Everett on Friday, January 28, 2011 in Unconventional Wisdom

There is a lot of mystique surrounding the hedge fund industry and many investors think that hedge funds are exclusive investment vehicles for the wealthy that somehow produce outsize return without taking on additional risk. Financial economists would tell you that idea is ridiculous, but it certainly persists. In fact, there seem to be plenty of people that are happy to pay the typical "2 and 20" fee that most hedge funds charge. That means paying 2% of assets under management plus 20% of the gains (usually over a benchmark or "hurdle" rate) to the hedge fund manager.

According to a recent article from Reuters, the hedge fund industry offered weak returns in 2010. The article states that hedge funds, on average, returned only 4.52% through December 28. The data is from the Hedge Fund Research HFRX index. That certainly doesn't compare well to the market indices and pales in comparison to our portfolio results.

Another reason that investors give money to hedge fund managers, according to Gabriel Burstein, Global Head of Investment Research for Lipper, is that "they are looking for returns that do not depend on the broader market, and can therefore improve the performance of the investor's overall portfolio." In other words, they are seeking to add an uncorrelated asset class to their portfolio. Yet, according the article, "nearly every hedge fund strategy tended to move in synchrony with the markets and with other hedge fund strategies this year."

Tags: fees, hedge funds, index, portfolio

Brent Everett

Brent Everett founded Profisys, LLC, a fee-only Registered Investment Advisor, in 1998. While acting as Managing Director of that firm, he developed the investment philosophy and the portfolio models currently used by Talis Advisors. He earned a B.S. in Computing and Information Sciences from Oklahoma State University. Mr. Everett’s background includes experience in strategic marketing, executive management and investor relations at Texas Instruments, Samsung Semiconductor, EDI, CSCI, and his own consulting practice. Brent served on the Board of Directors for CSCI, where he helped structure and negotiate management's successful purchase of the company.

Mr. Everett has been a member of the Financial Planning Association, where he was elected to the Board of Directors of the local chapter, the International Association of Financial Engineers, the Econometrics Society, the Association of Pension Professionals and Actuaries Benefits Council, the Estate Planning Council of North Texas and Mensa. He has discussed small cap stock investing on CNNfn and his views regarding investment advisor disclosure have been quoted by several major publications. Along with Scott Maxwell, Brent has been the cohost of The Peaceful Wealth Radio Hour on CNN. He was named as one of Texas Monthly magazine's "5 Star" wealth managers in 2010 and 2011 and one of D Magazine's top wealth managers in 2010.

Mr. Everett lives in Plano with his wife and their Labrador Retreiver. He has served as a member of the Business and Professional Leadership Committee of the Plano Symphony Orchestra, and enjoys reading, fly fishing, college sports, and Formula One racing.