Jane Buchan, chief executive of the $16 billion Pacific Alternative Asset Management, says it’s a “horrible environment” to start a hedge fund.
Speaking during Reuters Investment Outlook Summit in New York, Buchan said managers will find it increasingly difficult to justify their traditional 2-and-20 fees for the type of returns they’re delivering.
"Investors have to look at the fees versus the value," she said, according to Reuters.
Kynikos Associates founder Jim Chanos, addressing the same gathering, agreed. Although Kynikos started out with $16 million and grew that, over more than two decades, to $6 billion, he says his success will be hard to duplicate:
"Now, you can't do that," said Chanos. "If you can't raise nine figures right out of the box, it is going to be very difficult, and you won't attract institutional money."
The average hedge fund, according to Hedge Fund Research, was down 4.37% through November and Chanos, for one, is somewhat surprised investors are still accepting the 2-and-20 fee structure.
"You would have thought that competitive pressures would have hit a lot earlier," he said.
"The hedge fund industry is looking more like the sports industry where players have a limited time to be at the top of their game and earn a lot of money," said Buchan.
That said, Chanos still believes hedge funds are the best option for investors seeking higher than normal returns.