Hedge Funds: Leveling the Playing Field, Too Late
March 28th, 2007 by Justin
The FSA–the UK’s main financial regulator–recently announced plans to allow regular types to invest in Hedge funds, sort of. The United Kingdom, like the U.S., has til now kept a lock on who could invest in the vehicles. Since Hedge funds lack many of the same regulations as other investment vehicles, most government agencies and regulators have required that those investing in them meet certain requirements.
Wikipedia’s take covers the basic requirements in the United States: $200,000 annual income for two years, $300,000 income for two years if married, or $1,000,000 in net worth.
Needless to say, these benchmarks prevent most U.S. citizens from taking part, which is why so many copycat products are coming into the market. Regular guys want to earn high returns with less risk too. Trouble is, the high returns may be over as strategies Hedge funds pursue are too widespread at this point.
Hedge funds have risen at an average annual rate of 8.4 percent since 2000, less than half the gains of the 1990s, according to data compiled by Chicago-based Hedge Fund Research Inc. Vanguard Group’s flagship mutual fund tracking the Standard & Poor’s 500 Index climbed 15.6 percent last year, compared with the 6 percent drop of Goldman Sachs Group Inc.’s biggest hedge fund, whose management fees are about 10 times steeper.
The subpar performance isn’t stopping the world’s largest financial institutions, including UBS AG in Zurich and JPMorgan Chase & Co. in New York, from chasing higher fees by offering copycat hedge funds to people with as little as $1,000 to invest. Assets of the so-called long-short funds almost doubled to $16.5 billion in the U.S. in the past two years, according to Financial Research Corp. of Boston, which tracks money flows.
In a case typical of the Street–or in this case, the City of London–much of the the big money for investors has already been made, and the only way that Hedge funds themselves are going to continue to exist and profit is by servicing retail clients, who are unaware that the strategies they’re pursuing are passé and not worth paying 2% and 20% of profits for.
