Tiger 21: Hedge funds are ‘dead as a doornail’ for the super rich

Michael Sonnenfeld, founder and chairman of Tiger 21 – a network of ultra-high net worth investors and entrepreneurs, says hedge funds are “dead” as the investment class for for the super rich.

Data from the network shows that Tiger 21 members’ allocation to hedge funds has dropped from 12% to 2% over the past 16 years.

“Hedge funds have been as dead as a doornail — maintaining a steady position at 2% as members have refrained from investing in the sector over the past decades,” Sonnenfeldt said. He added that investors can get the same level of risk with fewer fees by investing in index funds. , or go into private equity.

Currently, private equity accounts for the largest allocation in Tiger 21 members’ portfolios at 29%, followed by real estate investments at 27%. Public equity holds about 19%, while cash accounts for about 12%. Hedge funds have a 2% allocation.

Tiger 21 has 106 teams in 46 markets. The network has 1,300 members, the majority of whom are first-generation wealth creators, who together manages assets worth more than 150 billion USD. They are also mostly entrepreneurs who have sold their companies and are looking to preserve their assets.

Members of the group, was founded in 1999 by Sonnenfeldtreceive and share advice with each other on wealth preservation, investments, and philanthropic efforts.

“Hedge funds have been in decline for over a decade,” Sonnenfeldt told CNBC via email. In a low interest rate environment, fixed fees become less attractive,” Sonnenfeldt told CNBC via email, adding that hedge funds can no longer “deliver exciting returns.”

Hedge funds are actively managed funds that focus on non-traditional assets and employ risky strategies. Hedge fund profits yes was found to increase with higher interest rates.

“Our members realized that on average they could do better with more exposure to index funds like QQQ and SPY with more liquidity and fewer fees, while also having ability to deliver higher returns over the past decade.”

Invesco QQQ ETF, an exchange-traded fund that tracks the performance of Nasdaq-100, increase 55% by 2023. spy, stands for SPDR S&P 500 ETF, which rose nearly 25% last year.

Global hedge funds returned 13.3% last year, recovering from -6.8% in 2022, according to data from investment firm Preqin.

From the last quarter of 2014 to the end of 2023, the industry saw net inflows of more than $217.3 billion, said Charles McGrath, assistant vice president at Preqin’s Research Insights.

“The hedge fund industry has struggled for much of the past decade, as investors continued to redeem capital from the asset class, offsetting overall returns,” he wrote in a recent report. positive”.

Preqin highlighted that a growing number of investors believe their hedge fund allocations are falling short of long-term expectations.