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Brian Abbott
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In investing, I have a heavy focus on reinsurance companies, and I enjoy learning how to value their investment portfolio and underwriting ability, taking inspiration from the reinsurance companies that Warren Buffett used to help build Berkshire Hathaway's investing empire. The other focused... More
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Montana Semi-Precious Metals
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  • Hedge Funds To Return 4-5% Per Year Through 2018? 0 comments
    Jan 11, 2013 6:58 PM | about stocks: GS

    Wow. That's all I can say after reading this article in Business Week quoting the recent forecast from Goldman Sachs (NYSE:GS) Private Wealth unit.

    Goldman Sachs Group Inc. (GS)'s private- wealth-management unit expects hedge funds to return an average of 4 percent to 5 percent over the next five years as the industry struggles amid low interest rates.

    "Everybody hopes to get the five hedge funds, all of whom are going to have 15 percent returns," Sharmin Mossavar- Rahmani, chief investment officer of Goldman Sachs Private Wealth Management's Investment Strategy Group, said at a press briefing today. "People need to be more realistic."

    This is amazing. Hedge funds typically charge 2% a year for management fees, plus 20% of gains. Plus, your money gets locked up with restrictive provisions dictating specific timing and procedures required in order to get it back. So a 4 to 5% annual return for the next 5 years is extremely significant, as forecasts go.

    I am going to spend some time digesting this. Maybe there are some other factors behind this forecast, such as other investments that Goldman Sachs gets more fees from, for example. I agree we're in a low return environment for a while longer, most likely. But hedge funds have a bunch of MBA's from Harvard. They're supposed to be really smart to deserve all those fees. 4 to 5% ? That makes bonds yielding a pretty safe 2 or 3% look like a pretty good deal, even with their interest rate risk.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: GS
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