Beverly Hills, LA – The financial sector especially the hedge fund industry came alive with comments lambasting hedge fund fees at the Milken conference today (May 2) a the speakers noted managers return too little and face a wave of closures.
The scathing comments came on the heels of Guru Warren Buffett saying that investors would be better off backing US businesses through low-cost funds and getting rid of money managers with a hefty financial burden.
Speaking earlier at the Berkshire Hathaway annual meeting, Buffett had pointed at the underperforming managers and giving what one could get “sitting on your rear end” in index funds.
“Supposedly sophisticated people, generally richer people, hire consultants. And no consultant in the world is going to tell you, ‘Just buy an S&P index fund and sit for the next 50 years,’” Buffett told shareholders. Mincing now words, Buffett said, “You don’t get to be a consultant that way, and you certainly don’t get an annual fee that way.”
Chris Ailman, chief investment officer for the $187 billion California State Teachers’ Retirement System, was quoted by the Bloomberg Television as saying that the two-and-twenty fee model is “broken” and “off the table” for large institutional investors. Neil Chriss, founder of Hutchin Hill Capital, said investors will pull out of funds that aren’t giving them returns to justify the fees.
“Reducing your fees is your best return on capital,” Ailman was cited as saying from the Milken Institute Global Conference. “So we focus very much on costs in every single asset class and we’re pounding on fees across the board.”
The $2.9 trillion hedge fund industry is having its worst start to a year in terms of performance and client withdrawals since 2009, when global markets were reeling from the most severe financial crisis since the Great Depression.