Soros: Fees Make Hedge Funds Bad Investment

January 27, 2013 James Heinsman Hedge Fund News

According to billionaire philanthropist and former hedge-fund manager George Soros institutions who are heavily invested in hedge funds should expect less-than-optimal performance, partly because managers take relatively high fees.

“Since hedge funds are now a dominant force in the market, they can’t, as a group, outperform the market,” Soros said in an interview from the Davos World Economic Forum. Soros said that funds’ fees, which can be as much as 2 percent of assets and 20 percent of profits, take big bites out of results.

Soros’ hedge fund was in operation until 2011. At that time Soros turned his New York-based Soros Management Fund LLC into a family office. Today that office overseas $24 billion. Soros’ average returns were about 20 percent per year at the firm and with the firm’s predecessor.

Another factor constraining the performance of hedge funds is the risk aversion of most managers and investors.

“Outperforming the market with low volatility on a consistent basis is an impossibility,” said Soros, 82. “I outperformed the market for 30-odd years, but not with low volatility.”
 

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