Hedge funds likely to return just 4-5% over next few years according to Goldman Sachs. Time to start looking at alternatives?

1 mins. to read

The “vampire squid” Goldman Sach’s private-wealth-management unit came out with a statement last week that they expect hedge funds en bloc to return an average of just 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.

The $2.19 trillion hedge-fund industry last year trailed global stocks for the fifth time in seven years, posting a 6.7 percent gain, according to data compiled by Bloomberg. The MSCI All-Country World Index (MXWO) returned 17 percent in 2012, and the Standard & Poor’s 500 Index (SPX) rose 16 percent.

With the Federal Reserve stating last year that they will keep interest rates near zero as long as the jobless rate is above 6.5 percent and inflation is forecast to be 2.5 percent or less, the present market environment is, it seems, proving more difficult than usual for the asset management industry to outperform.

Mossavar-Rahmani said investors are “overestimating” how much hedge funds can return in excess of market indexes. While some managers may do well, the low-interest-rate environment makes it difficult to produce double-digit returns, she said.

They don’t walk on water,” Mossavar-Rahmani said.

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