Hedge funds are ‘dead as a doornail’ for the ultra-rich, says Tiger 21

Hedge funds are “lifeless” as an funding class for the tremendous wealthy, mentioned Michael Sonnenfeld, founder and chairman of Tiger 21 — a community of extremely excessive internet price buyers and entrepreneurs.

Tiger 21 members’ allocation to hedge funds dropped to 2% from 12% over the previous 16 years, knowledge from the community confirmed.

“Hedge Funds are lifeless as a doornail — sustaining a gradual place at 2% as members have restricted their funding on this sector over the past many years,” Sonnenfeldt mentioned, including that buyers might get the same publicity with much less charges by investing in index funds, or going into non-public fairness.

Presently, non-public fairness takes up the most important allocation of Tiger 21 members’ portfolio at 29%, adopted by actual property investments at 27%. Public fairness holds round 19%, whereas money round 12%. Hedge funds have a 2% allocation. 

Tiger 21 has 106 teams in 46 markets. The community has 1,300 members, largely first-generation wealth creators who collectively handle over $150 billion price of belongings. They’re additionally largely entrepreneurs who’ve offered their firms and need to protect their wealth.

Members of the group, which was arrange in 1999 by Sonnenfeldt, obtain and share recommendation with one another on wealth preservation, investments and philanthropic endeavors.

“Hedge funds have been in decline for over a decade. In a low rate of interest setting, the fastened charges turned much less enticing,” Sonnenfeldt instructed CNBC by way of electronic mail, including that hedge funds might now not “ship thrilling returns.”

Hedge funds are actively managed funds with a deal with non-traditional belongings and make use of dangerous methods. Hedge fund returns have been discovered to rise with larger rates of interest. 

“Our members realized they may do higher on common with extra publicity to index funds just like the QQQ and SPYs with extra liquidity and fewer charges, and certain larger returns over the past decade,” Sonnenfeldt mentioned.

The Invesco QQQ ETF, an exchange-traded fund that tracks the efficiency of the Nasdaq-100, rose 55% in 2023. SPY, which stands for the SPDR S&P 500 ETF, gained virtually 25% final 12 months. 

International hedge funds returned 13.3% final 12 months, rebounding from -6.8% in 2022, in accordance with knowledge from funding firm Preqin.

Between the final quarter of 2014 and the top of 2023, the business has seen internet outflows of greater than $217.3 billion, mentioned Charles McGrath, assistant vp at Preqin’s Analysis Insights.

“The hedge funds business has been in a malaise for a lot of the previous decade, with buyers persevering with to redeem capital from the asset class, offsetting total optimistic returns,” he wrote in a current report.

Preqin highlighted {that a} rising share of buyers assume their hedge fund allocations fall wanting long-term expectations.