BE WARY OF THE HEDGE FUND PUNT

Finweek English Edition - - INVESTMENT -

Re­cently, the As­so­ci­a­tion for Sav­ings and In­vest­ment South Africa (Asisa) re­leased up­dated in­dus­try fig­ures say­ing that the hedge fund in­dus­try had risen 30% year on year as in­vestors have started to see hedge funds as a vi­able in­vest­ment ve­hi­cle, with nearly R47bn in as­sets now un­der man­age­ment. Robert Fos­ter, con­venor of the Asisa Hedge Funds Stand­ing Com­mit­tee, told the in­dus­try: “Hedge funds should not be seen as a higher risk al­ter­na­tive to, say, unit trust funds. They should be seen as one of the build­ing blocks of a well-di­ver­si­fied in­vest­ment port­fo­lio. Sim­ply put, most hedge funds aim to re­duce mar­ket volatil­ity for in­vestors in a port­fo­lio.”

While this sounds good and well, in­vestors might want to re­mem­ber that in 2008, Warren Buf­fett made a bet against hedge fund Pro­tégé Part­ners where he bet $1m that a low-cost in­dex track­ing fund on the S&P 500 could beat a se­lec­tion of US hedge funds. In­vestor news source Prag­matic Cap­i­tal­ism had a look at the bet and as­sumed that US hedge funds per­formed in line with the HFRI Monthly In­dices (HFRI). Here is who is win­ning:

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