Hedge funds: overcharging, under-delivering, now finally going out of business

Investors are finally waking up to the fact that the only people hedge funds tend to make rich are hedge fund managers. It’s about time, says Merryn Somerset Webb.


Investors are pulling their money out of hedge funds

Times are getting tough for hedge fund managers. So tough that, according to BlueCrest Capital Management, Europe's third-largest hedge fund manager, there's no point being in the business at all. The company has just told all its investors that it is sending them all their money back.

It turns out that "recent developments" in the industry have led to "downward pressure on fees levels, the increasing cost of hiring the best portfolio management talent and the difficulty in tailoring investment products to meet the individual needs of a large number of diverse investors have significantly reduced industry profitability and flexibility." Or so says its founder, Michael Platt.

These aren't ludicrous points if seen from the hedge fund manager's point of view, at least. Big institutional investors have been working to push down fees. They don't want to pay "two and 20" to managers anymore (2% of assets under management and 20% of any profits made).

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As the FT points out, the firm's largest fund, the BlueCrest International Fund (it's oldest), has either lost money or barely broken even for the last three years. The All Blue Fund has done a little better making an average of 4% over the last three years. That's not really enough to justify either the fees or the clever clogs grandstanding that go with big name hedge funds. Which is why the funds have recently "suffered large redemptions".

Investors started jumping long before Platt decided to push them. BlueCrest has made $22bn in trading profits in the last 15 years, and Platt is worth some $3.5bn. Last year, he earned $800m. Look at those numbers and it's hard to escape the conclusion that Bluecrest has been part of one of the greatest financial scams of all time.

Hedge funds have, generally, massively overcharged and massively under-delivered on their promises. Too many people have fallen for it. And that's made a lot of founders stupidly rich. Platt may not be impressed to find that investors are beginning to refuse to pay for his gravy train. The rest of us should see it as a sign of major progress.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.