Michael Sonnenfeldt, the founder and chairman of Tiger 21, a network for ultra high net worth investors, has starkly declared hedge funds a dying investment class for the affluent. According to Michael Sonnenfeldt, the allocation to hedge funds among Tiger 21 members has dramatically fallen from 12% to just 2% over the past 16 years. He emphasized that members have found better value and returns in other investment types such as index funds and private equity.
Tiger 21, which boasts 1,300 members managing assets worth over $150 billion, shows a significant preference in their portfolios for private equity and real estate investments, constituting 29% and 27% respectively. Public equity and cash also hold substantial portions at 19% and 12%.
Michael Sonnenfeldt pointed out that the shift away from hedge funds is driven by their inability to deliver exciting returns, especially in a low-interest rate environment where the fixed fees of hedge funds make them less attractive. This trend is supported by global performance data, which indicates that hedge funds returned 13.3% last year after a decline of -6.8% in 2022, according to Preqin, an investment company. In contrast, index funds like the Invesco QQQ ETF and the SPDR S&P 500 ETF saw much higher returns of 55% and nearly 25%, respectively, in the same period.
The industry has also experienced significant net outflows, with more than $217.3 billion withdrawn between the last quarter of 2014 and the end of 2023. Preqin notes that the hedge fund industry has been in a prolonged malaise, with ongoing capital redemptions offsetting the generally positive returns.
This pivot in investment strategy highlights a broader trend among high net worth individuals towards seeking more liquidity, lower fees, and potentially higher returns outside traditional hedge funds.
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