In the past, individual investors who were denied the opportunity to invest in hedge funds were thought to be missing out.
You must be an accredited investor to put money in a hedge fund, which entails annual income of $200,000 or a net worth of $1 million.
But this week's decision by the California Public Employees' Retirement System (Calpers) to dump its hedge fund investments indicates individual investors are lucky to be deprived of investing in hedge funds, says Mark Hulbert, editor of Hulbert Financial Digest.
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"Consider how you would have done had you been unlucky enough to put a lump sum in the market at the October 2007 stock market high," he writes on
MarketWatch.
"In retrospect, of course, that would have been the ideal time to begin hedging your portfolio."
But since then, a portfolio divided equally between a stock-market index fund and a bond-market index fund would have returned 1.9 percentage points per year more than a hedge fund.
"The bottom line? Odds have always been good that you weren't missing out by being denied access to the exclusive hedge fund arena," Hulbert argues. "Calpers' announcement provides yet more confirmation."
Wall Street Journal columnist Justin Lahart also notes mediocre performance by hedge funds.
"What has happened to the onetime masters of the investing universe?" he asks.
"Hedge funds may have become a victim of their own success. With assets under management tripling to $2.8 trillion from their 2004 level, according to HFR, the field has become so crowded that it isn't as easy for managers to consistently deliver strong performance."
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