Alternative investment is a term typically used by investors to describe investments other than stocks and bonds. Some also consider real estate in the alternative category, but I consider publicly traded REITs among the primary asset classes. Strategies commonly classified as alternative investments include venture capital, private equity, leveraged buy-out (LBO) funds, arbitrage strategies, hedge strategies, and "event driven" strategies.
The potential benefits of alternative investments include higher returns, reduced volatility, and diversification resulting from low correlation with other investments. The primary drawbacks include high management fees that often outweigh any outperformance, and potential one time losses from rare events. Alternatives also tend to be less liquid than primary asset classes. While many institutional investors allocate a modest percentage of their assets to this asset class, some funds have been more aggressive and allocated much larger percentages of their portfolios to alternative investment. Public pension plans more than doubled their allocations to alternative investments (to 25%) between 2006 and 2014.1
Venture Capital & Private Equity
Venture capital (VC) is the process of investing private equity in companies, typically in early stages of development, that are believed to offer significant potential to grow substantially and reward investors accordingly (as opposed to typical private equity which is usually invested in more mature companies). The objective of VC is to generate high rates of return over long periods of time. VC offers institutional investors and high-net-worth individuals potentially high returns and diversification benefits from generally low correlations with other asset classes. The major negatives of investing in VC are long time frames, lack of liquidity, and high management fees.
Before 1946, individuals and families dominated the VC markets. VC became a defined industry in the 1950's, primarily financed by wealthy individuals or syndicates. American Research and Development was founded in the early 1950's and was considered the grandfather of modern venture firms. The firm's $25,000 investment in Digital Equipment multiplied into a stake in excess of $100 million. Insurance companies and foreign investors were major players in VC in the 1960s and 1970s, followed by corporate pension funds beginning in the 1970s, and public pension funds in the 1980s. The majority of money going into venture capital funds now tends to come from institutional investors.
VC firms typically manage multiple funds formed over intervals of several years. Funds are illiquid, but as companies in the portfolio go public or are sold, the investors realize their returns. Funds typically consist of limited partnerships invested in a number of companies. A general rule for the breakdown of returns among VC company investments historically was 40% would be complete losses, 30% would be "living dead," with the remaining 30% generating substantial returns on the original investment. Big winners often yield 10 or more times the original investment. More recent data suggests about half (51%) of all of the capital exiting from venture-funded companies at a loss, while less than 4% of investments in VC exiting with gains of ten times or more.2
For individuals, if you own a business, or are a partner in a business, that interest is comparable to private equity, and if it is a start-up or very young company it could be considered comparable to a venture capital investment. Investing in private businesses could be considered similar to private equity, but institutional investors tend to have enough assets to diversify into many funds and investments. Many individual investors may not have the flexibility to have their investment tied up for many years until a liquidity event allows them to cash out, so private equity tends to be more appropriate for institutional investors.
Steven Kaplan and Josh Lerner argued (in a 2010 paper titled “It Ain't Broke: The Past, Present and Future of Venture Capital”) that historically, VC investments in companies represent only about 0.15% of the total value of the stock market.3 The paper summarized the industry and then recent results and included many other interesting facts and graphics. For instance, roughly 600,000 new businesses (that employ others) are started each year in the U.S., yet roughly 1,000 businesses receive their first VC funding each year, which implies only one sixth of one percent of new businesses get VC funding. However, since 1999, over 60% of Initial Public Offerings on the stock exchanges have been VC backed.
Like most asset classes, venture capital goes through strong and weak periods. Fund raising and performance in venture capital suffered following the global financial crisis. The Wall Street Journal cited VentureSource in noting in 2010 that 125 venture funds in the U.S. collected $13 billion in 2009, down from 203 funds that raised $28 billion in 2008 and 217 funds that raised $40 billion in 2007.4 VC companies generated $17 billion in IPOs and mergers and acquisitions in 2009, down 34% from $26 billion produced in 2008. As a result, several firms offered lower fees to investors as they pursued new funds.
According to data from the National Venture Capital Association, Venture Capital Deals temporarily peaked in 2007 with over 4,000 deals for over $30 Billion, dropping to under 2,800 and $18 Billion in 2009.5 U.S. venture capital firms' first-quarter of 2010 fundraising was the lowest first quarter since 1993.6 Recently, venture capital activity has been ramping up again with $53 Billion in corporate venture capital deals in 2018 according to cbinsights.com7 and according to Preqin there were over 1,000 venture capital deals completed for about $28 Billion in the first quarter of 2019.8
During good periods, venture capital returns can be very strong. For instance, according to Venture Economics, the average annual return on VC funds was 48%, 40%, and 36% for 1995, 1996 and 1997 respectively (but from 1981 to 1991 VC had negative returns). Many VC firms reported very strong returns over certain periods and the internet has produced scores of success stories that have yielded remarkable short term returns for VC firms. For instance, Yahoo went public within a year of its initial VC financing.
A feature article in the June 1996 issue of Institutional Investor focused on John Doerr of Kleiner Perkins Caufield & Byers. Although the firm almost failed with its first fund, it went on to become a premier early-stage investing firm. The firm is known for having financed Netscape, Compaq, Intuit, Lotus, Sun Microsystems, Amazon.com, and others. Kleiner reportedly "racked up average annualized returns of more than 30% since its founding in 1972, putting it in the top 1 percent of all venture firms." According to the article, the industry as a whole averaged 13.1 percent annual returns over the prior two decades (according to Venture Economics).
NEA, another well-known VC firm, was featured in a November 4, 1996 article titled "Paradigm Surfing" in Forbes. The firm's funds had returned 24% to investors from 1978 versus the VC average of 14%, according to Venture Economics Information Services (the S&P returned 16% for that period).
In 2012, Diane Mulcahy, Bill Weeks, and Harold Bradley published a paper titled “We Have Met the Enemy…and He is Us: Lessons from Twenty Years of the Kauffman Foundation's Investments in Venture Capital Funds and the Triumph of Hope Over Experience.”9 They reported their disappointment in underperforming expectations in close to 100 VC funds since 1997. They concluded “Our research suggests that investors like us succumb time and again to narrative fallacies, a well-studied behavioral finance bias.”
In a 2014 paper titled "Private Equity Performance: What Do We Know?" researchers reported results based on a new dataset from Burgiss starting with data in 1984.10 The authors determined that venture capital funds outperformed public equities in the 1990s, but underperformed in the 2000s. However they estimated that buyout fund performance was better than had previously been documented. According to their estimates, the private equity funds outperformed the S&P 500 by more than 3% annually. Private equity investments tend to be illiquid and the investments are usually locked in for many years, which in theory should result in a premium relative to liquid investments, and that data appears to support that argument.
The authors discussed the problem with prior uneven disclosure for private equity returns and questions about the quality of data. Cambridge Associates data (which hadn't been made available to researchers until recently) and Preqin data is qualitatively similar to that in Burgiss, but using data from Thomson Venture Economics tended to result in lower returns. The authors note that there could be some selection bias in the data sets, but they view that as unlikely given the similar results for the three main data sets.
According to a late 2018 Pitchbook survey of investors in private funds, fees were the most important consideration (ahead of historical performance, strategy, and other considerations).11 According to Pitchbook, long-term return expectations from the surveyed investors averaged 10% for private debt and real assets, and up to 18.5% for venture capital (as in many cases, expectations are often too optimistic).12 Yale's endowment fund is an example of an investor that allocates a very high percentage of its assets to alternatives and according to Yale’s 2018 endowment report, it has a target venture capital allocation of 18% (versus the 5.5% actual allocation of the average educational institution) and their "venture capital portfolio is expected to generate real returns of 16.0%."13
In VC: An American History, Tom Nicholas describes multiple stages of the venture capital industry and compares the venture capital industry to the early New England whaling industry, which also exhibited high risks, but potentially high returns. Nicholas notes that the U.S. venture experience evolved in "a specific cultural and regulatory context" which may explain why other countries attempts to replicate the success of VC firms in the U.S. have been mostly unsuccessful. He notes that "history shows that exceptional VC-style payoffs have been sporadic and infrequent, concentrated in specific firms and specific time periods."
Erik Stafford has argued based on historical data, that you can effectively replicate private equity performance buying publicly traded small cap securities with certain value characteristics, thereby generating similar returns and avoiding the large fees most private equity managers charge.14 There are some firms (like CircleUp) trying to introduce systematic investing strategies in private equity.15 InstitutionalInvestor.com also reported in 2019 that "DSC Quantitative Group and other quant asset managers are replicating the performance of the entire private equity market, giving investors access to the ‘beta’ of the asset class for a fraction of the fees charged by private equity firms."16
A significant question for individual investors is whether there will be an efficient way to replicate private equity asset class exposure in publicly available securities, like ETFs. You can buy stock in private equity firms like The Blackstone Group (BX), Colony Capital (CLNY), and The Carlyle Group (CG), and some may be part of a diversified equity fund already, but that's not the same as actually investing in their funds (as institutional and high net worth investors do).
Regardless of whether individual investors have access to a method of investing in private equity directly, or indirectly, there are multiple sources of data documenting better than public equity performance in private equity. For instance, a recent Bloomberg article noted that a private equity index created by investment firm Cambridge Associates LLC showed private equity funds returned over 13% annualized over the 25 years ending March 2019, versus about 9% for the S&P 500 (although the article did also discuss leverage, illiquidity, and performance measurement issues in the industry).17
Some have called for more disclosure and transparency in fees and other information,18 given the complications in evaluating private equity returns,19 while many large institutional investors are attempting to reduce their costs of private equity investing by negotiating lower fees, investing directly, or using a more "collaborative model."20 Vanguard has also reportedly been in discussions to try to create a way for its investors to participate in private equity.21 Vanguard had many years before posted commentary about private equity and argued it "should be treated as but one small component of a portfolio’s allocation to all equity investments, private and public."22
Hedge Funds
The term hedge fund has become somewhat of a catch all phrase for private investment funds marketed to institutional and high net worth investors. The contents and intent of the funds can have an extremely broad range and most attempts to analyze hedge funds break them down into seven or more classifications, many of which also employ leverage by borrowing to accentuate gains (or losses). They tend to be illiquid (not publicly traded) and some of the assets may be difficult to value. Many hedge funds originally were intended to hedge against large price moves in traditional asset classes, to be market neutral, or have low exposure to specific markets, but the variance in fund strategies grew dramatically in recent decades. Original hedge fund clients were wealthy people looking for high returns. After 2000 there was a shift to protecting capital, and risk control as hedge fund clientele became more institutional.23
The hedge fund industry is estimated by most to manage at least several trillion dollars. Hedge funds have continued to attract investments despite traditionally much higher costs than other investment vehicles. Many investors are attracted by the stories of large gains by hedge funds and their managers. George Soros and John Paulson for instance, earned billions for trades documented in the press and in many books like The Greatest Trade Ever, plus there has been a steady stream of press stories about earnings by Hedge fund managers.24 According to Institutional Investor's "Rich List" 4 individuals at hedge funds earned over $1 billion in 2017. But hedge funds have come under intense criticism and some would argue the hedge fund industry is deservedly in crisis. In additional to the very high fees that most charge, they tend to be less transparent and less accessible than traditional funds.
There are many hedge fund universes that are cited publicly and privately, but investors should keep in mind that many of the numbers may be biased depending on how they are calculated. Pensions and Investments, and others often report various metrics and indexes including those from Barclays, Hennessee, Eurekahedge, HFRI, Dow Jones Credit Suisse, Greenwich, Newedge CTA, plus fund of fund indexes from HFRI and Eurekahedge. Other sources include the TASS Database, CSFB/Tremont, and Van Hedge Advisors.25
Ekaterini Panopoulou and Nikolaos Voukelatos analyzed more than 9,500 hedge funds tracked by the BarclayHedge database from January 1994 through August 2015 and they divided them into 12 investment-style categories, such as long-short, event-driven and relative value, and they compared the performance of hedge funds within each style. Previous studies argued hedge funds with unique strategies tend to beat their industry-conforming peers, but the outperformance disappeared when risk and fees were taken into account. They concluded "our empirical results cast doubt on the presumption that pursuing a distinctive strategy leads to improved performance. Unique strategies seem to involve substantially higher levels of risk exposure without offering sufficiently higher returns, especially after taking into account funds’ idiosyncratic characteristics."26
The hedge fund, it is said, is not an investment strategy but a compensation strategy.
Jack Bogle in The Little Book of Common Sense Investing
Roger Ibbotson, Peng Chen, and Kevin Zhu had previously published a broad study of hedge funds in 2011. Using data from the TASS database, which included dead funds and backfill data, they obtained monthly hedge fund return data for 1995–2009. Although their results indicated that both survivorship and backfill biases were potentially serious problems, they found that hedge fund returns averaged 11.1% of which 3.4% was paid in fees leaving 7.7% return which (4.7% represented beta or compensation for the risk taken and 3% represented alpha or value added by the funds).27
More recently, the hedge fund industry has struggled. Stephen Brown summarized at the end of 2016 “The hedge fund industry is in a state of crisis.” He noted that from January 2009 through March 2016, the S&P 500 Index earned an annualized total return of 14.5% versus 6.1% for the broad-based HFRI Asset Weighted Composite Index and the Dow Jones Credit Suisse Hedge Fund Index (an asset-weighted index). The underperformance, high fees, and transparency issues have been cited as possible reasons for the September 2014 decision by the California Public Employees’ Retirement System (CalPERS) to exit the hedge fund sector, withdrawing $4 billion in the process. Hans Sterte, chief investment officer of the $90 Alecta Swedish fund, also avoids hedge funds and calls them “expensive black-box investments.”28 Among the many issues, Brown pointed out that “hedge funds were marketed as ‘market neutral’ or low-beta strategies,“ and he concluded that "... without appropriate due diligence, hedge fund diversification can be dangerous to one's financial health."29
"There is an argument to be made that some hedge funds (perhaps more than a few) are merely a wealth transfer mechanism for moving money from the gullible wealthy to the savvy manager."
Barry Ritholtz30
Mark Hulbert summarized the state of the hedge fund industry in a Marketwatch column in late 2017.31 Hulbert suggested that a simple and cheap portfolio of 60% stocks and 40% bonds returned 8.1% from 1994 through August 2017 versus 7.7% for the Credit Suisse Hedge Fund Index with roughly the same risk. He points out that some funds obviously do better, but there is little evidence of performance persistence in hedge funds, so predicting the outperformers in advance is highly questionable. Morningstar compared hedge fund returns to relevant mutual funds for five years and concluded "hedge fund managers consumed every extra penny they collected in fees, and then some."32 The Economist ran an article at the start of 2018 titled “The hedge-fund delusion that grips pension-fund managers” and subtitled “Most hedge-fund managers are not good enough, on average, to offset their high fees.”33
The sector timing ability and average style choices of hedge funds are no better than that of mutual funds. Additionally, we fail to find differential ability between hedge funds. Overall, our study raises serious questions about the proficiency of hedge fund managers.
John Griffin and Jin Xu34
Hedge Funds also tend to have a high attrition rate. Some hedge funds close because their performance is poor, but funds close for many reasons. Bing Liang and Hyuna Park published a paper in 2010 and they recommend focusing on downside risk measures for predicting the possibility of failures rather than traditional risk measures.35 According to HFR, in 2016 1,057 funds were closed during the year, representing the highest total since 2008 when 1,471 funds were closed.36 There were almost 10,000 hedge funds on the market as of the third quarter of 2017 with over $3.15 trillion. Assets continued to grow, but 2017 was on track to be the third straight year that the number of liquidations outpaced the number of funds coming to market.37 As of June 2018, hedge fund closures had slowed significantly, but the fourth quarter of 2018 was difficult for many asset classes.38 The number of Hedge Fund closures exceeded the number of new Hedge Funds in the second half of 2018 according to Hedge Fund Research (HFR), which is not surprising given that the S&P 500 has outperformed the average hedge fund by more than 100% since 2009, according to an Axios analysis.39
A recent article at Bloomberg noted that currency-only hedge funds were popular for a time, but between 2008 and 2018 the number of currency funds tracked by the BarclayHedge Currency Traders Index dropped from 145 to 49.40 Some hedge fund buyers expect them to do better than traditional asset classes during market downturns, but in 2018, global stocks were down and hedge funds also had losses of over -5%.41 Hedge funds reportedly controlled $3.61 trillion in assets under management at the end of June 201842 and there were an estimated $955 billion invested in equity Hedge Funds as of September 2018.43
Most hedge funds should be out of business.
Michael Livian44
Do Hedge Funds make sense for individual investors? Personally, I don't have much hedge fund experience and I am very skeptical of the general hedge fund proposition. I recognize there are some very skilled hedge fund managers and if you can generate competitive returns with low correlations relative to traditional long-term investments, hedge funds in some specific asset classes could make sense.
Some academics have studied and written favorably about hedge funds, but the high costs, lack of transparency, and biases in many of the databases tip the scales away from giving them the benefit of a doubt. If you are going to invest in hedge funds there is plenty of research about attempting to identify ways to improve your odds. For instance you probably want to avoid managers with psychopathic tendencies45, but you may improve your chances by investing in hedge funds run by women.46 Some research suggests hedge fund managers that do well in poker tournaments outperform others,47 but managers with powerful sports cars take more risk without performing better.48
I still find it hard to believe that apparently Long Term Capital Management's final month of performance wasn't included in any of the hedge fund universes, which is indicative of one of the major problems with hedge fund performance reporting. Security selection and market timing are zero sum games before costs, so hedge funds with high costs attempting to engage in those activities will be less successful in aggregate than others attempting the same activities with lower costs. Lin Sun and Melvyn Teo recently found that hedge fund managers that go public create a conflict of interest whereby their interest in increasing assets under management results in underperformance relative to unlisted firms.49
"...many high-net-worth individuals, the other big group of hedge fund investors, are incorrigible gamblers. Despite the lackluster performance of equity hedge funds, the best managers among them have delivered eye-popping returns, and investors can’t resist trying to pick the winners."
Nir Kaissar50
There have been some efforts to create funds accessible to individual investors that replicate hedge fund strategies. For instance, IndexIQ (now part of NY Life Investments) started several funds and their Hedge Multi-Strategy ETF (QAI) had over $1 billion in assets in the past, but less now (and an annual expense ratio to .80%). The funds are effectively funds of funds that attempt to replicate various hedge fund categories performances. While their expense ratios are relatively reasonable compared to actual hedge funds, investors could in theory mimic the portfolios on their own using the same publicly traded securities held by the funds, yet the funds offer the advantages of transparency and liquidity (avoiding the lock-up associated with traditional hedge funds). AQR, founded by Clifford Asness and others, offers both institutional funds and mutual funds (the firm's quantitative equity funds have underperformed and experienced outflows recently51) and those interested in hedge fund alternatives (despite all the warnings) may be interested in investigating their offerings.52
The relationship between stocks, private equity, hedge funds, private real estate, and REITs
Private equity arguably should return more than public equities because an investor in private equity has to agree to have their investment tied up with the manager of the investments and the respective shares until it can be liquidated or sold. Investors in public stocks can sell them any time the market is open. Both are profit seeking entities, but private equities investors should expect an illiquidity premium versus public stocks. So, for example, if you expect public equities to return on average 6% real returns, an investor in private equity might expect at least a net 7% real return.53 Some have argued the illiquidity premium has been several percentage points.54 A secondary market has developed for private equity investments (meaning investors in the funds buy and sell their positions separately from the fund manager) and many secondary transactions in private equity investments are also priced above the net asset value of the fund, both of which can reduce the illiquidity premium.55 There may be some diversification benefit from owning private equity (in addition to public equities), but that's a separate factor.
Private real estate funds arguably should return more than public real estate funds based on this logic as well. If there are two similar funds, one public and one non-public, an investor arguably would expect a higher return on the non-public fund because it can't be sold publicly. Yet, private real estate funds usually have higher management fees than public real estate funds representing a separate disadvantage, and partially as a result they have historically underperformed (see chapter 16).
There may be times when public funds offer better value than private funds and vice versa. When that happens, in theory, market participants will buy and sell the respective funds in attempting to improve their returns (or their risk/return relationship). For example, in the first half of 2018, Pensions and Investments reported that private equity managers were purchasing public REITs and taking them private to take advantage of low prices of those REITs.56 Private Equity firm Blackstone Group was raised a record $20 billion for a real estate fund in 2019.57 These trends could also be the result of too much money being invested in private equity and too few other opportunities to generate decent returns. A recent article at Institutional Investor was titled "Everything About Private Equity Reeks of Bubble. Party On!"58 According to Preqin, private equity fund have over $2 trillion in unallocated capital or “dry powder" looking for places to invest.59 Leon Cooperman, recently stated "I think private equity is a scam . . . They're getting very fancy fees for sitting on your money.”60
Many investment professionals believe most public investment markets are generally very efficient, but not perfectly efficient. An investor with that perspective can buy an index fund expecting to generate long-term returns from the entire U.S. stock market rather than try to pick individual stocks or sectors. Public and private markets also tend to generally be efficient and the flexibility of different types of investors (like private equity funds and hedge funds) results in those investors attempting to purchase any investments or asset classes that may become undervalued relative to other assets. In fact, there is some evidence that hedge fund managers are better at picking stocks than other institutional investors (banks, insurance companies, mutual funds, investment advisors), but given how much they charge their investors, that doesn't necessarily translate into outperformance.61
Looking back we often do find that different categories become over and undervalued, but in the long run the market tends to balance out. The question for investors is whether they intentionally try to be on the right side of those over and under-valued occasions.
I have argued based on both theory and empirical evidence, that REITS, as well as private equity and venture capital can make sense for institutional and high net worth investors that have access to them. But most of the evidence (and the typically very high costs) argue for avoidance of hedge funds. Yet (according to a 2017 paper from the Center for Retirement Research at Boston College) from 2005 to 2015 the percentage of alternative assets of state and local pension plan funds allocated to real estate dropped from 63% to 31%, while allocations to Hedge Funds rose from 6% to 31% (private equity rose from 29% to 35%). During that period, the plans reduced allocations to traditional equities and more than doubled allocations to “alternative investments.” That did not work out the way many of those running the plans had hoped. The authors of the study concluded that the “empirical results revealed a consistently negative and statistically significant relationship between alternative investments and returns on the total investment portfolio.”62 Similarly, John Rekenthaler at Morningstar recently suggested the 10 year track record for retail alternative-investment funds in the various categories they track has been disappointing relative to equities. "For stock-heavy investors, alternative investments have come in two flavors: 1) thoroughly useless and 2) mostly useless."63
Notes
1. http://www.pewtrusts.org/~/media/assets/2017/04/psrs_state_public_pension_funds_increase_use_of_complex_investments.pdf
2. https://medium.com/correlation-ventures/venture-capital-no-were-not-normal-32a26edea7c7
3. http://faculty.chicagobooth.edu/steven.kaplan/research/kaplanlerner.pdf
http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6622.2010.00272.x/abstract
4. “Venture-Capital Firms Caught in a Shakeout,” Wall Street Journal, March 9, 2010 https://www.wsj.com/articles/SB10001424052748703915204575104221092909884
5. https://nvca.org
6. http://www.pionline.com/article/20100413/ONLINE/100419970
7. https://www.cbinsights.com/research/report/corporate-venture-capital-trends-2018/
8. https://www.preqin.com/insights/special-reports-and-factsheets/preqin-and-first-republic-update-us-venture-capital-in-q1-2019/25959
9. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2053258
10. Robert Harris, Tim Jenkinson, and Steven Kaplan, “Private Equity Performance: What Do We Know?” Journal of Finance, October 2014
http://onlinelibrary.wiley.com/doi/10.1111/jofi.12154/abstract
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932316
11. https://www.institutionalinvestor.com/article/b1c7h5vy65jhr3/Private-Market-Investors-Say-Fees-Matter-Most-in-Manager-Selection
12. https://files.pitchbook.com/website/files/pdf/PitchBook_2018_Annual_Institutional_Investors_Survey.pdf
13. https://static1.squarespace.com/static/55db7b87e4b0dca22fba2438/t/5c8b09008165f55d4bec1a36/1552615684090/2018+Yale+Endowment.pdf
14. Erik Stafford, Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting, 2015 https://www.hbs.edu/faculty/Pages/item.aspx?num=50433
BUY and BUYN are examples of recently created ETFs designed to mimic private equity performance. Whether they can have success in attracting assets and meeting their objectives is yet to be seen.
15. See https://www.institutionalinvestor.com/article/b1c640md2kgp81/This-San-Francisco-Investor-Wants-to-Revolutionize-Private-Equity-Is-He-Crazy
16. Julie Segal, Can Steve Schwarzman Be Replicated? Private equity “beta” can be replicated by quants for a fraction of the costs. But will investors sign on? August 27, 2019 https://www.institutionalinvestor.com/article/b1gx3gzky9jlw0/Can-Steve-Schwarzman-Be-Replicated
17. https://www.bloomberg.com/news/features/2019-10-03/how-private-equity-works-and-took-over-everything
18. For instance, see Alicia McElhaney, How Private Equity Firms Should Disclose Fees, Loans to Investors, June 27, 2019 https://www.institutionalinvestor.com/article/b1g0r1cql071r7/How-Private-Equity-Firms-Should-Disclose-Fees-Loans-to-Investors
19. https://blogs.cfainstitute.org/investor/2019/06/25/private-equity-access-should-we-beware/
20. For instance, see Arleen Jacobius, CalPERS not alone on private equity shift, Pensions & Investments, April 1, 2019 https://www.pionline.com/article/20190401/PRINT/190409988/calpers-not-alone-on-private-equity-shift
21. Dawn Lim, Indexing Giant Vanguard Examining a Push Into Private Equity, Wall Street Journal, June 23, 2019 https://www.wsj.com/articles/indexing-giant-vanguard-examining-a-push-into-private-equity-11561287602
22. Understanding Alternative Investments: Private Equity Performance Measurement and Its Role in a Portfolio https://personal.vanguard.com/pdf/flgpe.pdf
23. https://www.institutionalinvestor.com/article/b1bh5sbz82rzbx/Have-Institutional-Investors-Spoiled-the-Hedge-Fund-Party
24. For instance see https://www.institutionalinvestor.com/article/b18dwjvpw2n9v9/the-rich-list
25. A summary of 18 Hedge Fund strategies with returns for the decade ending 2018 can be found at https://www.worth.com/the-hedge-fund-strategies-that-actually-work/
26. Ekaterini Panopoulou and Nikolaos Voukelatos, "The Role of Strategy Distinctiveness in Hedge Fund Performance," October 2017 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3060993
Amy Whyte, Why Unconventional Hedge Funds May Not Outperform, After All, Institutional Investors, November 06, 2017
https://www.institutionalinvestor.com/article/b15hpwtbxnsln0/why-unconventional-hedge-funds-may-not-outperform-after-all
27. Roger Ibbotson, Peng Chen, and Kevin Zhu, The ABCs of Hedge Funds: Alphas, Betas, and Costs, Financial Analysts Journal, January/February 2011 https://www.cfapubs.org/doi/pdf/10.2469/faj.v67.n1.6
28. Rafaela Lindeberg, A $90 Billion Swedish Investor Says He Won't Touch Hedge Funds, April 29, 2019 https://www.bloomberg.com/news/articles/2019-04-30/a-90-billion-swedish-investor-says-he-won-t-touch-hedge-funds
29. Stephen J. Brown, "Why Hedge Funds?" Financial Analysts Journal Nov/Dec 2016 https://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n6.6
30. Barry Ritholtz, “How you, the amateur investor, can beat the pros,” Washington Post, November 6, 2015 https://www.washingtonpost.com/business/get-there/how-you-the-amateur-investor-can-beat-the-pros/2015/11/06/2c1daed0-8430-11e5-8ba6-cec48b74b2a7_story.html
https://ritholtz.com/2015/11/the-amateur-investing-advantage/
31. Mark Hulbert, Here’s how to push against the ‘I want to buy hedge funds’ argument, November 6, 2017 https://www.marketwatch.com/story/heres-how-to-push-against-the-i-want-to-buy-hedge-funds-argument-2017-11-06
32. https://www.morningstar.com/articles/883298/will-hedge-funds-ever-recover.html
33. https://www.economist.com/news/finance-and-economics/21735038-most-hedge-fund-managers-are-not-good-enough-average-offset-their-high
34. John Griffin and Jin Xu, How Smart are the Smart Guys? A Unique View from Hedge Fund Stock Holdings
The Review of Financial Studies (July 2009) https://academic.oup.com/rfs/article-abstract/22/7/2531/1601313
35. Bing Liang and Hyuna Park, Predicting Hedge Fund Failure: A Comparison of Risk Measures, The Journal of Financial and Quantitative Analysis, February 2010 https://www.jstor.org/stable/27801479?seq=1#page_scan_tab_contents
36. https://www.marketwatch.com/story/hedge-funds-closed-down-last-year-at-a-pace-unseen-since-2008-2017-03-17
37. https://www.marketwatch.com/story/hedge-fund-assets-hit-record-even-as-fund-closures-continue-to-outpace-launches-2017-10-19
38. https://www.hedgefundresearch.com/news/hedge-fund-liquidations-fall-to-lowest-level-since-2007
https://www.institutionalinvestor.com/article/b1b1bd9jlh7jxp/Hedge-Fund-Closures-Plummet-to-Pre-Crisis-Level
39. https://www.axios.com/the-hedge-fund-moment-is-over-d9418958-2ac2-488f-b29b-0a5cba4d2c95.html
40. Griefeld, Katherine and Ryan, Charlotte, Why No One Wants to Invest in Currency Hedge Funds Anymore, Bloomberg.com, April 15, 2019 https://www.bloomberg.com/news/articles/2019-04-16/why-no-one-wants-to-invest-in-currency-hedge-funds-anymore
41. https://www.bloomberg.com/news/articles/2019-01-08/hedge-funds-lost-almost-6-last-year-as-markets-roiled-managers , although Bridgewater, the largest hedge fund had a good year – see
https://www.cnbc.com/2019/01/04/hedge-fund-returns-in-2018-the-good-the-bad-the-ugly.html
42. https://www.ai-cio.com/news/lackluster-hedge-funds-q1-cant-stop-industry-growth/
43. Nir Kaissar, If Hedge Funds Are Lagging, Why Do They Have So Much Money? Washington Post, February 19, 2019
https://www.washingtonpost.com/business/if-hedge-funds-are-lagging-why-do-they-have-so-much-money/2019/02/19/6d29cfca-3446-11e9-8375-e3dcf6b68558_story.html
44. Michael Livian, How To Build A Poor Man's Hedge Fund (10/18/10) https://www.cnbc.com/id/39342454/
45. Leanne ten Brinke, Aimee Kish, Dacher Keltner, Hedge Fund Managers With Psychopathic Tendencies Make for Worse Investors, October 19, 2017 http://journals.sagepub.com/doi/abs/10.1177/0146167217733080
46. https://www.fnlondon.com/articles/hedge-funds-run-by-women-outperform-by-20-20180116
47. Yan Lu, Sandra Mortal, and Sugata Ray, “Hedge Fund Hold’em” http://finance.darden.virginia.edu/wp-content/uploads/2019/02/Hedge-Fund-Holdem-I.pdf
48. Stephen Brown, Yan Lu, Sugata Ray, Melvyn Teo, “Sensation Seeking and Hedge Funds”, Journal of Finance https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2882983
https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12723
49. Lin Sun and Melvyn Teo, Public hedge funds, Journal of Financial Economics, January 2019 https://doi.org/10.1016/j.jfineco.2018.09.004
50. Nir Kaissar, If Hedge Funds Are Lagging, Why Do They Have So Much Money? Washington Post, February 19, 2019 https://www.washingtonpost.com/business/if-hedge-funds-are-lagging-why-do-they-have-so-much-money/2019/02/19/6d29cfca-3446-11e9-8375-e3dcf6b68558_story.html
51. https://www.etf.com/sections/etf-strategist-corner/factor-etfs-diversification-or-diworsification
52. https://funds.aqr.com/
53. According to CNBC (citing Cambridge Assoc.) over the past ten years, the returns on private equity were 14.3% versus 13.1% for the S&P 500 https://www.cnbc.com/2019/07/05/investor-karen-firestone-how-vanguard-could-potentially-shake-up-this-closed-market.html
54. For instance see "Private equity: A potential source for enhanced returns," JP Morgan, August 2016 https://am.jpmorgan.com/blobcontent/1383370279325/83456/II_PE_Potential%20Source%20for%20Enhanced%20Returns_r4.pdf
55. Alicia McElhaneym, "Here Are the Private Equity Funds Winning the Secondary Market," Institutional Investor, January 18, 2019 https://www.institutionalinvestor.com/article/b1crdd8r4j687y/Here-Are-the-Private-Equity-Funds-Winning-the-Secondary-Market
56. http://www.pionline.com/article/20180625/PRINT/180629927/reit-managers-getting-gobbled-up-again
57. https://www.blackstone.com/media/press-releases/article/blackstone-announces-20_5-billion-final-close-for-latest-global-real-estate-fund
See also Peter Grant, Blackstone Aims to Throw Weight Around With a Record Real Estate Fund,” Wall Street Journal, January 15, 2019
https://www.wsj.com/articles/blackstone-aims-to-throw-weight-around-with-a-record-real-estate-fund-11547560801 and
https://www.bloomberg.com/news/articles/2019-02-13/private-equity-likes-the-look-of-blackstone-s-real-estate-model
58. Christine Idzelis at Institutional Investor was titled "Everything About Private Equity Reeks of Bubble. Party On!" July 22, 2018 https://www.institutionalinvestor.com/article/b195s0y2vfll69/Everything-About-Private-Equity-Reeks-of-Bubble-Party-On
59. https://www.preqin.com/insights/blogs/alternatives-in-2019-private-capital-dry-powder-reaches-2tn/25289
Private equity races to spend record $2.5tn cash pile, June 26, 2019
https://www.ft.com/content/2f777656-9854-11e9-9573-ee5cbb98ed36
60. https://www.forbes.com/sites/lcarrel/2019/09/13/hedge-fund-manager-leon-cooperman-call-private-equity-a-scam/#6425e9841ec6
61. Charles Cao, Yong Chen, William Goetzmann, and Bing Ling, Hedge Funds and Stock Price Formation, Financial Analysts Journal, Third Quarter 2018
62. Jean-Pierre Aubry, Anqi Chen, and Alicia Munnell, A First Look at Alternative Investments and Public Pensions. Center for Retirement Research at Boston College. July 2017 http://crr.bc.edu/wp-content/uploads/2017/06/slp_55.pdf
63. John Rekenthaler, Judgment Day, May 16, 2019 https://www.morningstar.com/articles/929988/judgment-day.html
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