“A hedge fund for you and me? The best move is to take a pass”
Barry Ritholtz on Hedge Funds
The math is compelling. Hedge fund managers get rich – “2&20” as they say. The investors? Rarely. And the hedging? A lot less than you might think, since the name “hedge fund” has evolved into a misnomer – as Ritholtz says, they are more often some kind of absolute return fund, usually leveraged as much as the managers can, since the managers have everything to gain and very little to lose by taking risk.
Moreover, they are not accessible to the vast majority. A retail investor is most likely to encounter one of these hedge funds via a feeder or fund-of-funds, with the additional layers of costs on top of the already outrageous costs. To overcome all these layers of expense, these funds need to hit home runs every time. And they just don’t.
Worth reading. And if your “advisor” is trying to sell you on one of these, especially via some limited vehicle (for which the “advisor” may be getting a huge commission, from which as much as another 2% of fees may be levied on top of the already absurd 2&20) — run, don’t walk, away from that “advisor”. That’s not “advice” – it’s just plain lipstick on a pig sales talk.