Hedge Funds Deserve the Drubbing By Private Equity

When the liquidity tide recedes, investors from sovereign wealth to billionaire family offices are getting even more impatient with hedge funds. They are discovering that a lot of these expensive money managers don’t really hedge, and the pivot toward private equity was the right decision after all.

Hedge funds are on track for the second-worst year of return on record, beaten only by the steep losses during the 2008 Global Financial Crisis. Star managers are nursing billion dollar losses. Tiger Global Management’s main hedge fund, which started the year with $21 billion, lost about half of its value as of July. Melvin Capital Management, a once-high-flying manager that got an unusual bailout from Steve Cohen’s Point72 Asset Management, shut its door in May.

Much of this year’s pain was borne by the so-called long-short equity funds, by far the biggest and most popular sub-category with about $1.2 trillion assets under management. On average, they fell about 9.9% in the first seven months, data compiled by Bloomberg show.