Steer clear of troubled hedge funds

As hedge funds cut their fees in a desperate attempt to attract investors, big names are leaving the business. It’s a sector in turmoil, says Tim Bennett.

The hedge-fund industry is under siege. Big names continue to quit the latest is Greg Coffey, the former chief investment officer of Moore Capital Management's European business. Meanwhile, Caxton Associates, known for running large, successful funds, joins a growing list of funds that are cutting their fees.

While we're often fans of investing in out-of-favour sectors, we wouldn't rush to pile money into this one. So, what's gone so badly wrong? Firstly, the emperor has been shown to be largely naked. Hedge funds used to be able to hide their colossal fees behind exotic-sounding investment techniques. But phrases such as short selling, quantitative analysis, high frequency trading and the like are now pretty commonplace. This has left hedge funds struggling to differentiate themselves, while added competition has made returns harder to come by and fees harder to justify.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.