The big comeback: Hedge fund managers at Milken predict
industry rebound
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[May 02, 2018]
By Lawrence Delevingne
BEVERLY HILLS, Calif. (Reuters) - Hedge
funds, following an extended period of low investor confidence and
unspectacular returns, are poised to be great again, according to
managers at a West Coast gathering of some of the world's largest
investors.
"If you define it as generating returns that aren't commoditized, that
aren't easy, by doing things that others are constrained from doing,
then $3 trillion is just way too small," Andrew Feldstein, head of
BlueMountain Capital Management LLC, said in reference to the current
size of the overall hedge fund industry.
Ricky Sandler, another prominent hedge fund manager who leads $7 billion
stock-focused Eminence Capital, said the opportunity to find alpha, or
returns above market benchmarks, was as good as 15 or 20 years ago, a
period known for double-digit investment gains.
"The opportunity is there," Sandler said.
![](http://archives.lincolndailynews.com/2018/May/02/images/ads/current/powell_dailysda_PROM_2018.png)
Dawn Fitzpatrick, chief investment officer of Soros Fund Management, the
personal investment office of billionaire former hedge fund manager
George Soros, was also positive on the industry and managers' flexible
approach to markets.
"As markets become more challenging, our skills will become more in
favor," Fitzpatrick said.
The comments came Tuesday on a panel at the Milken Institute Global
Conference, a Wall Street-heavy event organized by
financier-turned-philanthropist Michael Milken.
All the panelists predicted higher returns for hedge funds in the next
few years, even if they lag the "late stage" bull market in the near
term.
Hedge funds have struggled in the post-financial crisis bull market as
their relatively conservative investment approach and high fees -
traditionally 2 percent of assets and 20 percent of profits - have
underperformed simple index funds.
The average hedge fund, per data tracker Hedge Fund Research Inc, gained
6.6 percent in 2017 when weighted by assets, compared to a 21.8 percent
gain for the S&P 500 Index, with dividends, and a 4.2 percent gain for
the Barclays Capital Government/Credit Bond Index.
This year, the average hedge fund is up about 0.6 percent versus slight
declines in the same stock and bond benchmarks.
While performance has generally lagged over the last decade, industry
assets are at a record high. Hedge fund capital increased by $4.5
billion in the first quarter of 2018 to a record of $3.215 trillion, per
HFR.
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![](../images/050218pics/busine39.jpg)
Ricky Sandler, Founder, CEO and Chief Investment Officer, Eminence
Capital, speaks at the Milken Institute's 21st Global Conference in
Beverly Hills, California, U.S. May 1, 2018. REUTERS/Lucy Nicholson
![](http://archives.lincolndailynews.com/2018/May/02/images/ads/current/Lincoln-Heating-sda-041515.png)
Dmitry Balyasny, another panelist who leads multi-strategy Balyasny Asset
Management LP, predicted industry consolidation.
He said that $3 trillion was "way too much" for assets of hedge funds as they
are traditionally understood, focused solely on finding alpha. But Balyasny
added that hedge funds could still produce "a valuable return stream" with a
more flexible definition of their purpose.
The Milken event's hedge fund managers acknowledged that the industry was in
evolution with declining fees and increasing specialization.
Fitzpatrick said that Soros had worked to outsource certain investment
opportunities given its relative lack of expertise, such as giving money to
niche managers who focus on China and biotechnology.
Feldstein said that BlueMountain, which manages approximately $21 billion and is
best known for credit-focused bets, has been building its capabilities in its
quantitative investing, a hot hedge fund strategy that uses vast amounts of data
and computer algorithms to inform market bets.
![](http://archives.lincolndailynews.com/2018/May/02/images/ads/current/ccaonline_lda050208.png)
Sandler said that Eminence was also working to improve its use of quantitative
science to inform stock bets and adding to its capability to short, or bet
against, stocks.
"We've realized the world has changed and we have to keep building and evolving
our firms," Sandler said.
(Reporting by Lawrence Delevingne; Editing by Jennifer Ablan and Phil Berlowitz)
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