Hedge funds lost $85 billion in the third quarter, the worst quarterly performance since the fourth quarter of 2008 and the fourth worst ever, according to CNNMoney. The article contains a chart depicting a stomach-churning ride for hedge fund investors: down 19.03% in 2008, up 19.98% in 2009, up 10.25 in 2010, down 5.44 so far this year. With all that volatility, investors (if they rode it all out) have a net 5.76% gain since 2008, which is 1.54% per year. Investors would have been better off buying a 10-year treasury bill yielding 3.66% per year in 2008.
Hedge funds, which are unregulated, now manage $2.04 trillion, the most money they have ever managed. Some are marketed as absolute return funds that are supposed, by virtue of complex hedging strategies, to be able to provide a positive return in up and down markets alike. Instead most have underperformed.
Hedge funds are a type of alternative investment. Among other risks and problems, most hedge funds have high fees. Investors often pay a base management fee of 2% or more of total assets, plus a performance fee of 20% of the profits or more.
Atlanta attorney J. Boyd Page observed: “Hedge funds are sold to investors either directly or through brokerage firms. Despite claims to the contrary, however, they are often highly correlated with stock market risk particularly in volatile markets. That risk is aggravated when large concentrations are sold to investors (often close to 20% of the investor’s entire portfolio). Brokers have a legal duty to explain all the important risks of any investment they recommend, but investors are often not told the true risks involved because the brokers don’t understand the real risks. Investors who have lost money in hedge funds often have compelling claims to recover their losses.”
Page Perry is an Atlanta-based law firm with over 150 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving hedge funds and other alternative investments. For further information, please contact us.