Michael Sonnenfeld, founder and chairman of Tiger21, a network of wealthy investors and entrepreneurs, said hedge funds are “dead” as an asset class for the wealthy.
Data from the network shows that Tiger 21 members’ allocation to hedge funds has fallen from 12% to 2% over the past 16 years.
“Hedge funds are dead as nails — they hold a fixed 2% position because their members have held their investment positions in the sector for the past several decades,” Sonnenfeld said, adding that by investing in index funds, investors gain similar exposure to fees earned. Or go into private equity.
Currently, private equity holds the largest portfolio allocation among Tiger 21 members at 29%, followed by real estate investments at 27%. Public stock owns about 19%, while cash owns about 12%. Hedge funds have a 2% allocation.
Tiger 21 has 106 groups in 46 markets. The network has 1,300 members, most of whom are first-generation wealth creators who work together Managing assets worth over $150 billion. These are often entrepreneurs who have sold their companies and want to preserve their assets.
team members, Created in 1999 by SonnenfeldtReceive and share advice on wealth preservation, investment and philanthropic initiatives.
Our members have realized that, on average, they can do better with more exposure to index funds…with more liquidity, lower fees and potentially higher returns over the past decade.
Michael Sonnenfeld
Founder and CEO of Tiger21
“Hedge funds have been in decline for more than a decade. In a low interest rate environment, fixed fees have become less attractive,” Sonnenfeld told CNBC via email, adding that hedge funds “can no longer deliver exciting returns.”
Hedge funds are actively managed funds that focus on unconventional assets and employ risky strategies. There are hedge fund returns These have been seen to increase with the rise in interest rates.
“Our members recognize that they can do better on average if they have more exposure to index funds like QQQ and SPYs with more liquidity, lower fees and higher returns over the past decade,” Sonnenfeld said.
Invesco QQQ ETF, an exchange-traded fund that tracks the performance of the Nasdaq-100 index, 55% growth in 2023. SPY, which stands for the SPDR S&P 500 ETF, is up nearly 25% over the past year.
Global hedge funds returned 13.3% last year, recovering from -6.8% in 2022, according to data from investment firm Prekin.
Between the fourth quarter of 2014 and the end of 2023, the industry saw a net outflow of more than $217.3 billion, said Charles McGrath, assistant vice president of research insights at Prekin.
“The hedge fund industry has been in crisis for much of the past decade as investors have continued to withdraw capital from the asset class, erasing positive overall returns,” he wrote in a recent report.
Priakin highlighted that a growing percentage of investors believe their hedge fund allocations are falling short of long-term expectations.
