Cliff Asness from AQR put together a very interesting piece rebutting some of the negative press surrounding hedge fund returns. The gist of the piece is that the financial press misses the mark when criticizing hedge funds. They inevitably compare something with a beta of far less than 1 (hedge funds) to something with a beta of 1 (the S&P 500 or the market). While there are perfectly valid criticisms of hedge funds, not keeping up with the S&P over a 9 year bull market shouldn’t be one of them…
Here is a chart from the piece, where Asness compares the cumulative return of hedge funds versus 1) the market, 2) a 60/40 portfolio, and 3) hedge fund’s own historical beta. He argues that the latter two are much more appropriate comparisons. He’s not saying that hedge funds have had a stellar 10 years (in fact he criticizes them for having flat returns while charging lofty fees), he’s only saying that you have to compare apples to apples.
Click here to read the whole piece.
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