(Image Credit: mebfaber.com)
One of my favorite bloggers is Meb Faber @ mebfaber.com.
Meb recently wrote an article called Institutional Investors Are Delusional, where he commented on a recent survey of 400+ real money institutional respondents asked to estimate the net returns they will receive from their hedge funds.
The results astounded Meb and they will astound you.
Here’s a copy of his very short article:
“I was skimming this recent publication from BNY Mellon and FT remark when a particular graphic caught my eye.”
“Below is a survey from 400+ real money institutional respondents (we’re talking endowments, pension funds, insurance companies, and sovereign wealth funds). This is their estimate of the net returns they will receive from their hedge funds:”
“1% say 6-8%”
“32% say 9-11%”
“30% say 12-14%”
“32% say 15-17%”
“5% say 18% or more”
(Source: https://www.bnymellon.com/_global-assets/pdf/our-thinking/institutional-investment-in-alternative-assets.pdf#page=8)
“Assuming the middle of each range that means the institutions are expecting their hedge funds to return 13% per year.”
“Have you lost your @!$%X# mind?”
“That is the most asinine survey responses I have ever heard of but it EXPLAINS SO MUCH. No wonder so many institutions can’t beat a 60/40 benchmark when they think that they are going to achieve 13% hedge fund returns. Which, by the way, the hedge fund industry has only achieved TWICE in the past 16 years. 13% is about 50% higher returns than the industry has returned back to the 1990s (Barclays at 8%) and nearly THREE TIMES the returns from HFR (4%).”
“Oh, and by the way, a 13% NET return means you need to average gross returns of almost 20%. Good luck with that. Our friend Wes [Wes Gray] has demonstrated how that is nearly impossible to achieve and sustain.”
“This reminds me of one of my favorite Charlie Munger quotes from Tren’s book :”
“I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, “My God, they’re purple and green. Do fish really take these lures?” And he said, “Mister, I don’t sell to fish.”
“I would love to know the 1% CIO that responded 6-8% returns, as most of the rest should be fired.”
Well said Meb!
Make sure you check out Meb’s website. He has loads of awesome investing articles and research papers.
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