Some of the largest investors in the world jetted home underwhelmed on Wednesday from a three-day blitz of meetings with hedge fund managers, unimpressed by their bearish outlook and cautious approach to markets.
Many big-money clients – representatives of wealthy families, endowments and private investment firms in New York, London and Geneva – came to the Morgan Stanley Hedge Fund Forum at the $1,000-a-night Breakers Palm Beach resort in a sour mood, hurt by their hedge fund investments last year and so far in January.
Their outlook has not improved much after a stream of panel discussions, individual meetings and private dinners with top hedge fund managers and their sales teams, participants told Reuters. Investment ideas presented were largely familiar, including so-called bearish views on China, commodities and stocks.
"I’m disappointed by their attitudes – they seem resigned and disappointed," said one hedge fund allocator and longtime event attendee who was hoping for more novel investment ideas. “No one is really excited by anything.”
Participants spoke about conference specifics on condition of anonymity because the invitation-only event was closed to the press.
The Breakers gathering, in its 18th year, once again featured a slew of top hedge fund names, including Paul Tudor Jones of Tudor Investment Corp, Dmitry Balyasny of Balyasny Asset Management and Dan Och of Och-Ziff Capital Management.
Morgan Stanley uses the event to parade its hedge fund clients – who pay it commissions for trading and borrowing money – before some of the largest investors in the world.
Hedge fund allocators present included representatives of Vulcan Capital, the money manager for billionaire Paul Allen; New York Life affiliate Private Advisors; and Morgan Stanley’s wealth management division. More than 300 hedge fund investors were registered to attend, according to a list seen by Reuters.
The mostly male attendees sported dark suits with no neckties, as the weather alternated between partial sun and heavy rain. Hedge fund brochures touting “alpha," or skill-based investment performance, were toted around in complimentary canvas beach bags branded with the Morgan Stanley logo.
A spokesman for Morgan Stanley declined to comment.
Toy Boats In A Hurricane
With stocks, oil and other markets down sharply for the year, the investors were not surprised by all the negative talk.
“It’s trotting out the party line,” said an adviser to wealthy families. “The bulls would be everywhere if the market were up 50 percent.”
“I’ve never seen the place at such a loss,” added another large investor about hedge fund managers who presented. “They’re all cautious.”
Despite the frustration, there was little evidence of investors pulling out of hedge funds.
Michael Oliver Weinberg, chief investment strategist at investment firm Protégé Partners, said he still saw pockets of opportunity.
“There are plenty of exciting ways to produce returns despite the turbulent markets,” he said.
Weinberg, who declined to discuss conference specifics, said he likes strategies such as those that use computer-driven quantitative analysis; bets on the relative value of bonds; and stock picking in Asia.
Broadly, global hedge fund assets hit record highs in 2015, nearly $3 trillion. Recent surveys of institutional investors such as pension plans have shown that they plan to maintain or add to their hedge fund portfolios.
One hedge fund marketer at the event said investors were worried about when to invest, not if.
"Many investors think the perception of risk is greater than the actual risk,” the person said. “But knowing how to time adding to positions is very hard as a result.”
Investors may not be dumping hedge funds, but several were happy to express their recent displeasure.
The average hedge fund, as represented by the Absolute Return Composite Index, fell 0.16 percent in 2015, the third losing year in less than a decade.
“It takes someone very special to earn the high fees,” said one representative of a wealthy family. Hedge funds typically charge a 2 percent fee for assets managed and keep 20 percent of profit generated.
The person added that they had been slowly paring back their allocation to hedge funds and poor performance in 2015 only underlined the logic behind the move.
“These ‘brilliant’ guys,” the person said, “got tossed around like toy boats in a hurricane.”
