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

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

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

“Hedge Funds are dead as a doornail — maintaining a steady position at 2% as members have limited their investment in this sector over the last decades,” Sonnenfeldt stated, including that buyers may get an identical publicity with much less charges by investing in index funds, or going into non-public fairness.

Presently, non-public fairness takes up the biggest 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 manage over $150 billion worth of assets. They’re additionally largely entrepreneurs who’ve bought their corporations and want to protect their wealth.

Members of the group, which was set up 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 interest rate environment, the fixed fees became less attractive,” Sonnenfeldt instructed CNBC by way of e-mail, including that hedge funds may now not “deliver exciting returns.”

Hedge funds are actively managed funds with a give attention to non-traditional belongings and make use of dangerous methods. Hedge fund returns have been found to rise with higher interest rates. 

“Our members realized they could do better on average with more exposure to index funds like the QQQ and SPYs with more liquidity and less fees, and likely higher returns over the last decade,” Sonnenfeldt stated.

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 nearly 25% final 12 months. 

World hedge funds returned 13.3% final 12 months, rebounding from -6.8% in 2022, in keeping with information from funding firm Preqin.

Between the final quarter of 2014 and the top of 2023, the trade has seen web outflows of greater than $217.3 billion, stated Charles McGrath, assistant vice chairman at Preqin’s Analysis Insights.

“The hedge funds industry has been in a malaise for much of the past decade, with investors continuing to redeem capital from the asset class, offsetting overall positive returns,” he wrote in a latest report.

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