Are Savvy Investors Fleeing Hedge Funds?

In this segment of Motley Fool Answers, Alison Southwick, Robert Brokamp, and former hedge fund manager Ron Gross consider the performance of hedge funds. Yes, their returns have been unspectacular recently. On the other hand, there seems to be an ever-growing number of them. Some say those two facts are more connected than they'd initially appear.

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A full transcript follows the video.

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This podcast was recorded on Aug. 30, 2016.

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Alison Southwick:Yeah. Some of the articles I was reading about hedge funds ahead of this, were really making -- two major headlines were that hedge funds tend to be hemorrhaging assets under management. They're not performing well lately. But there's also so many of them. There's, like, somewhere between 10,000 and 15,000 hedge funds.

Ron Gross:Yep, and that's actually one of the reasons you'll hear hedge funds say that the performance is weak. That there's too much money chasing the same ideas, and that kind of arbitrages them out of the system.

Southwick:Or too much money going to dumb people.

Gross:It could be. There are a lot of funds. And, as you said, it's because, really, it's pretty easy to set one up and just begin. Raising money is another story. That's hard to do. But there's so much capital out there, as you said. But even though you'll hear managers blame the fact that there's too much capital chasing too few ideas, I don't know if that's the real reason for underperformance. I think underperformance is because of plain old bad stock picking.


Gross:And, you know, let's call it what it is.


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