Michael Sonnenfeldt, founder, CEO and chairman of Tiger 21.
Adam Jeffrey | CNBC
Hedge funds are “dead” as an investment class for the wealthy, said Michael Sonnenfeld, founder and chairman of Tiger21, a network of high-net-worth investors and entrepreneurs.
Data from the network showed that Tiger 21 members' allocations to hedge funds fell to 2% from 12% over the past 16 years.
“Hedge funds are dead as nails — holding a fixed position at 2% as members positioned their investments in the sector over the past decades,” Sonnenfeldt said, adding that investors could get similar exposure with lower fees by investing in index funds. Or get into private equity.
Currently, private equity holds the largest portfolio allocation of Tiger 21 members at 29%, followed by real estate investments at 27%. Public stocks own about 19%, while cash holds about 12%. Hedge funds have a 2% allocation.
Tiger 21 has 106 groups in 46 markets. The network has 1,300 members, most of whom are first-generation wealth creators working collaboratively Managing assets worth more than $150 billion. They are also often entrepreneurs who have sold their companies and are looking to preserve their wealth.
Members of the group, Created in 1999 by SonnenfeldtReceive and exchange advice with each other on wealth preservation, investments and philanthropic endeavors.
Our members realized they could do better on average with more exposure to index funds…with more liquidity, lower fees, and potentially higher returns over the past decade.
Michael Sonnenfeldt
Tiger 21 Founder and Chairman of the Board of Directors
“Hedge funds have been in decline for more than a decade. In a low interest rate environment, fixed fees have become less attractive,” Sonnenfeldt told CNBC via email, adding that hedge funds can no longer “deliver exciting returns.”
Hedge funds are actively managed funds focusing on non-traditional assets and using risky strategies. Hedge funds have returns It has been found that they rise as interest rates rise.
“Our members realized they could do better on average with more exposure to index funds like QQQ and SPYs with greater liquidity, lower fees, and likely higher returns over the past decade,” Sonnenfeldt said.
Invesco QQQ ETF, an exchange-traded fund that tracks the performance of the Nasdaq-100 Index, Increased by 55% in 2023. SPY, which stands for SPDR S&P 500 ETF, is up nearly 25% in the past year.
Global hedge funds returned 13.3% last year, rebounding from -6.8% in 2022, according to data from investment firm Preqin.
Between the fourth quarter of 2014 and the end of 2023, the industry saw net outflows of more than $217.3 billion, said Charles McGrath, associate vice president at Preqin's Research Insights.
“The hedge fund industry has been in distress for much of the past decade, with investors continuing to retrieve capital from the asset class, offsetting positive overall returns,” he wrote in a recent report.
Preakin highlighted that a growing percentage of investors believe their hedge fund allocations are falling short of long-term expectations.
