The outlook for the economy is good, but the outlook for hedge funds is not so good.[@@]
Robert Manning, chief executive officer of Massachusetts Financial Services, Boston, gave that assessment during an annual investment review.
“Hedge funds are an industry disaster waiting to happen,” Manning said
There is too much money chasing too few hedge funds, and the cost of investing in hedge funds is steep when compared with the cost of investing in mutual funds, Manning argued.
Because most retail investors buy hedge funds through funds of funds, the retail investors pay both a hedge fund fee and a fund fee, and the fees can eat up more than 30% of a portfolio’s profits, Manning said.
Manning’s company, MFS, is a unit of Sun Life Financial Inc., Toronto.
Hedge funds are investment funds aimed at sophisticated investors. Because they are exempt from some of the government restrictions imposed on ordinary mutual funds, they can use investment tools such as short-selling, leverage and derivatives. Some hedge funds are designed to perform better when markets turn down.