Hedge funds and the credibility investors give them have fluctuated a lot historically. In the last ten years, since the 2008 financial crisis occurred. But until then it was hedge funds that dominated the fiscal market, featuring top money managers, investment levels and high fees. Such characteristics were what kept the hedge funds elite.
Much changed with what happened in 2008. According to Value Walk, before the 2008 crisis, approximately 43% of hedge fund assets came from institutional investors. Six years later almost 2/3 of all hedge fund assets were from international capital. It was 201 that saw the biggest plummet for the hedge fund industry since the crisis began with net outflows of around $95 billion across the quarter.
So then a situation arrived whereby hedge funds started trying to get back investors by lowering fees with a structural change moving away from the two and twenty (2% of total assets and 20% of management gains/operation fees) model.
So things stabilized for a while. But according to billionaire hedge fund manager Ray Dalio, that might not be the case in the long term. He said:
“We have to sell a lot of Treasury bonds, and we as Americans will not be able to buy all those treasury bonds. The Federal Reserve will have to print more money to make up for the deficit, will have to monetize more, and that’ll cause a depreciation in the value of the dollar. “Two years out is when I’m worried about. It’ll be more of a dollar crisis than a debt crisis, and I think it’ll be more of a political and social crisis.” How a government responds to a debt crisis is more important than the nature of the crisis itself, Dalio writes.“I think there should be an emergency economic powers act” allowing the President, the Fed chairman, the speaker of the House and the Senate majority leader “to do the things that are necessary,” he concluded: The time to buy is when there’s blood in the street. I think we’re getting there.”
And more caution is needed for deregulation and its consequences which could result in an even deeper recession than 2008. According to a CNBC report:
“It was precisely the pre-2008 deregulatory agenda, including the elimination of barriers between investment and commercial banking, that led to the development of complex financial instruments, such as credit default swaps and derivative markets. This encouraged excessive risk-taking by banks and mortgage lenders. By rolling back these regulations and dismantling portions of the Dodd-Frank Act, the Trump administration is removing the safety net and creating a perfect storm that could lead to a crisis even worse than 2008.”