Investors pull $15bn from hedge funds

Hedge funds have suffered their worst quarter in seven years after more than $15bn was pulled out by investors starting to fight back against the high fees being charged across the industry.

The total amount invested in hedge funds fell to $2.86tn in the first three months of the year, marking the first time since 2009 that the sector has faced two consecutive quarters of net outflows, according to data from Hedge Fund Research.

Sharp market moves have wrongfooted many firms, leading to poor performances in the first quarter from funds such as Bill Ackman’s Pershing Square, and rankling investors already disgruntled over fee structures charging 2 per cent for management as well as 20 per cent of profits. A broad index of hedge fund performance fell 0.7 per cent in the first quarter, according to HFR.

Fed up with paying “exorbitant fees” for poor returns, the New York City Employees’ Retirement System has cut its $1.5bn programme, pulling money from managers including Perry Capital and Brevan Howard. The shift comes about 18 months after California’s pension scheme also scrapped hedge funds from its portfolio.

At the same time, sovereign wealth funds have been withdrawing billions from asset managers globally as they turn their attention to supporting their own faltering oil-dependent economies.

Letitia James, public advocate for the New York pension scheme, attacked managers who “balk at negotiations for investor-favourable terms” believing they “could do no wrong, even as they are losing money”.

“If they were truly fiduciaries and cared about our members, they would never charge large fees for failing to deliver on their promises,” she said. “Let them sell their summer homes and jets, and return those fees to their investors.”

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