Point72 President Doug Haynes said in October that there could be more closures and money pulled out of the hedge fund business as the “cost of being excellent” in the industry keeps rising.
Cohen said at the conference one of his biggest worries last year was that his firm might become the victim of an indiscriminate market selloff as other funds endured troubles and reduced risk. He said his worst fears were realized in February when his firm lost 8 percent. U.S. stocks fell to an almost two-year low that month.
Earlier Monday, hedge funds came under criticism at the conference on the heels of Buffett’s comments at his firm’s annual shareholder meeting on Saturday.
High Pay
Chris Ailman, who runs investments at the $187 billion California State Teachers’ Retirement System, said in a Bloomberg Television interview that the hedge fund industry’s fee model is “broken” and “off the table” for large institutional investors. Chriss, founder of hedge fund Hutchin Hill Capital, said investors will pull out of funds that aren’t giving them returns to justify the fees.
Hedge fund managers are among the highest paid in the finance industry, traditionally charging clients 2 percent of assets as a management fee and taking 20 percent of profits generated. Buffett described the fee structure as “a compensation scheme that is unbelievable” to him.
Since the global financial crisis, some managers have cut fees in exchange for getting larger investments from clients and locking their money up for longer periods. Even so, New York City’s pension fund for civil employees voted last month to end investing in hedge funds, determining that they didn’t perform well enough to justify high fees.
Worst Start
Cohen said he was amazed that investors aren’t more demanding. He said pension plans and endowments tend to follow trends instead of being forward thinking.
The $2.9 trillion hedge fund business is having its worst start to a year in terms of returns and client withdrawals since 2009, when financial markets were reeling from the global financial crisis. Managers including Bill Ackman, John Paulson and Crispin Odey posted declines of at least 15 percent in the first three months in some of their funds.