Hedge fund 'wannabes' blasted
THE vast majority of hedge fund managers are wannabes, has-beens and never-weres, and incapable of generating the market-busting, double-digit returns that investors are led to believe, major research by top consultant KPMG has found.
The devastating critique of the sexy but ultra-secretive hedge fund industry also predicts the expected consolidation in the market will not come through acquisitions but through the failure of hundreds of funds via a 'Darwinian' survival of the fittest.
A new report by KPMG and UK think tank Create reveals that very few hedge fund managers are all they are cracked up to be.
'About 15% of hedge fund managers are stars with a proven track record,' said Professor Amin Rajan, chief executive of Create.
'A further 55% are wannabes with the right pedigree but they are neither tested nor stretched. The rest are the victims of the brutal burn and churn that characterise their industry.
'Most of the industry is as yet incapable of generating high double-digit returns that investors are led to expect.'
In recent weeks, investigations by The Evening Standard, sister newspaper to This is Money, have shown the massive, personal financial gains being made by London's leading hedge fund managers.
George Robinson and three other directors of City-based Sloane Robinson paid themselves £53m last year, while Ferox Capital's Jeremy Herrmann and his investment managers shared £32m. Noam Gottesmann of Europe's largest hedge fund GLG is reckoned to have paid himself £30m last year.
But only last month, Bailey Coates, once a star of the Mayfair hedge fund scene, shut the door on its flagship fund after bets went wrong and investors pulled their cash.
The report, based on a survey of 550 hedge funds, institutional prime brokers and mainstream fund managers predicts a rapid consolidation in the industry, but one based more one high attrition rates than acquisition.
'Consolidation will happen, but more through Darwinian than traditional routes,' says the report. The report also predicts that as more institutional money flows into hedge funds seeking marketbeating returns, so hedge funds will become commoditised and their huge charges - 2% annual charges and 20% 'performance' fees - will be driven down.
? German Premier Gerhard Schroder is attempting to get hedge fund fears on the agenda of the meeting of G8 heads at Gleneagles this week. He is calling for more transparency at funds and a harmonisation of international regulation.
