‘The beauty of hedge funds’
Jagdeep Singh Bachher, chief investment officer of UC Investments, one of the largest institutional investors in the US, has only one regret: “it’s that I’m not a hedge fund manager”.
His thinking? “Hedge funds are a fantastic business if you’re on Wall Street, and you can charge a great fee and then you can afford to buy all the art and the private jets and the amazing houses in the world,” he said.
This was part of a scathing rebuke against the $4.7tn industry that he delivered last week as the $190bn manager of the University of California’s endowment and pension approved a plan to reallocate its 10 per cent hedge fund portfolio to public equities, report my colleagues Sun Yu and Amelia Pollard.
Bachher used the opportunity to lambast the industry for not delivering for clients and for failing to provide adequate risk protection.
He said that UC Investment’s hedge fund positions had undermined its overall performance by introducing risks during market upheavals in 1999, 2008 and 2020. “In each of those three scenarios, hedge funds didn’t hedge us,” he added. “They exposed us to the opposite kind of risk, which actually meant they hurt us.”
The move underscores concerns among asset allocators about hedge fund investments that come with unstable returns, high fees and long lockups.
Bachher said if the endowment’s hedge fund portfolio had instead been allocated to a combination of stocks and bonds over the past 20 years, it would have avoided “all the drama and the illiquidity and all the high fees” and still had comparable returns.
He said that UC Investments decided to unwind its hedge fund portfolio in 2020 when the endowment adjusted its allocation target. The process, which “typically takes” 90 days, ended up lasting five years because of “the beauty of hedge funds”.
Needless to say, the course of true hedge fund riches never did run smooth. Just ask Bobby Jain. The former co-chief investment officer at Millennium Management tried to pull off the world’s largest hedge fund launch last year. Jain Global had to settle for the largest launch since 2018 with $5.3bn in commitments from investors, after falling short of the initial fundraising target of $8bn-$10bn.