Steben & Company White Paper | Myth Busting: Hedge Funds are Dead

11/30/17

Steben & Company, Inc., a leading alternative asset manager, today released its latest white paper and video overview entitled 'Myth Busting: Hedge Funds are Dead,' which examines many of the key arguments made against hedge funds.

"Hedge funds have seemingly fallen out of favor over the course of the second longest equity bull market in history. A policy of unprecedented quantitative easing (QE) has supported a rising tide environment, ripe for long-only passive (index) investing in traditional asset classes. As performance of hedge funds has lagged equity markets, a steady stream of news articles has sounded the death knell for the industry," said John Dolfin, Chief Investment Officer of Steben & Company. "We set out to analyze the empirical data so that we could separate the facts from the sensationalism. The results debunk the myths we tend to hear about most often."

Key takeaways from the white paper include:

  • Myth: The "Smart Money" is Getting Out of Hedge Funds Capital invested in hedge funds by US public pension funds has grown steadily in recent years (now over $315 Billion), while the average endowment has maintained an approximate 19% allocation to hedge funds over the last 5 years.
  • Myth: Hedge Funds Underperform the Equity Markets Over the Long-Term A long-term historical performance comparison of hedge funds (HFRI Fund Weighted Composite Index) and stocks (S&P 500 TR) suggests the recent performance gap is cyclical rather than structural. Stocks have outperformed since 2009, but hedge funds remain marginally ahead for the period starting January 1990 through September 2017.
  • Myth: Hedge Funds Don't Provide Diversification Prior to the 2008 financial crisis, hedge fund correlations to the S&P 500 ranged from 0.4 to 0.8. Post crisis correlations have moved higher to 0.8 to 0.9, mostly due to higher beta equity long/short and event driven strategies. Equity market neutral and global macro strategies have maintained lower equity correlations of around 0.3.
  • Myth: Fees are Too High and Liquidity is Too Low Hedge funds continue to evolve in response to the environment and fees have declined on average. Many managers now offer hedge fund strategies within highly liquid, lower fee investment vehicles such as alternative mutual funds and European UCITS funds.

To read the full white paper or to view the brief video that complements the white paper, please visit www.steben.com/education-and-resources or contact us at 240.631.7600.

About Steben & Company

Steben & Company is a leading alternative asset manager that specializes in multi-manager products including fund of hedge funds and managed futures strategies. Steben's investment philosophy is defined by high conviction, actively managed exposures with a focus on more liquid, lower beta strategies. Steben's funds are designed to provide investors with the potential benefits of diversification and the opportunity for absolute returns regardless of market direction.

Steben is an alternative investments innovator with more than 25 years of continuous operating experience.

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