Most investors sounded out the benefits of betting via hedge funds. Hugh Culverhouse Jr, a known hedge fund investor, said the USD2.25 trillion industry a decade ago was a go-to place for rich individual investor who wish to make money easily. "It was so simple to leverage up and make a fortune," Culverhouse Jr said.
Culverhouse Jr's thoughts about hedge funds were similar to other wealthy investors. According to a Reuters report, hedge funds were more favored due to its small size but generate big returns largely because of abundant management support. Large institutional funds, including pension funds, have yet to pick up traction as they have yet to embrace the industry, Reuters said in its report.
Culverhouse Jr is a trial attorney based in Miami whose father was the former owner of the Tampa Bay Buccaneers and the National Football League team. Culverhouse Jr sold the team in 1994 after his father's death. Culverhouse had made bets in the financial market, most notably his investment on Daniel Loeb's USD13 billion Third Point LLC. However, Culverhouse Jr still favors smaller hewdge funds.
The increase in attraction to small hedge funds had posed a challenge to hedge fund managers as each compete for wealthy investors. From 600 in 1990, the number of funds had increased to around 10,000 funds, all vying for investments from wealthy investors.
Kynikos Associates short-seller Jim Chanos said about the growth, "I think hedge funds' fees are still in a bubble. The days of 2 and 20 are well behind us; investors have gotten a lot more sophisticated."
However, the industry had not been registering good returns in the last thee years. Nonetheless, the report said investments continued to flow into hedge funds as they view the investments in such vehicles a necessary but expensive part of its portfolio. According to research firm HFR, investors poured in USD23 billion in fresh capital during the third quarter this year, the highest inflow in more than two years.
Offit Capital Management chief investment officer Todd Petzel said, "Our view is that you use a hedge fund with all it's baggage - inferior liquidity, generally higher fees, frequently less tax efficient - only if there is a compelling investment thesis that cannot be properly executed otherwise. There are some of those certainly but the vast majority of funds out there fail our test."
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