Few hedge funds outperform traditionals: new study

FWR Staff

16 June 2006

Investors can achieve like performance from well-diversified stk portfolios. If you’re looking at hedge funds as a particularly lucrative investment avenue, you could be barking up the wrong tree. A study by Presidio Financial Partners, Demystifying Hedge Funds II, finds that most hedge fund investors can achieve similar returns with traditional asset classes.

Hedges were meant to hedge

Analyzing historical data to determine that the average annualized return of hedge funds was very similar to that of a diversified portfolio of stocks and bonds, Presidio concludes that only 12 to 15 of the more than 1,000 hedge fund of funds – and no more than 250 of the more than 8,000 individual hedge funds – “delivered performance in line with their higher fees,” according to a press release.

Presidio considered seven key factors, such as top-down management, management caliber and risk management, in its analysis. Demystifying Hedge Funds II, is “not intended to dissuade individuals and institutions from hedge funds, which remain an important component of a total asset allocation strategy,” says Jeff Spears, managing director of Presidio.

Instead, it's simply a reminder for investors to proceed with caution, however wildly popular hedge funds become.

San Francisco-based Presidio is an independent wealth-management and corporate-finance provider. Presidio Wealth Management offers investment advice to individuals and families. Presidio Merchant Partners executes private placements and merger and acquisition services for emerging growth companies with revenue from $20 million to $200 million. –FWR