Hedge funds slow to adjust champagne tastes to beer budgets
Hedge funds have struggled of late to keep up their reputation as the sports cars of the investment world, often overtaken in the race for returns by the public buses of portfolios, index funds.
But the proverbial Ferraris of investing—paid big to beat the market or protect from its gyrations—have so far shown little sign of curtailing their lavish spending on compensation, offices and employee perks.
Hedge fund operators still work out of trophy offices in Manhattan’s Plaza district, Greenwich, Connecticut or London’s Mayfair. They are keeping the free lunch and snacks, ski and beach junkets, and even in-house yoga. And they continue to lavish portfolio managers with multi-million dollar pay, all in the face of poor performance and declining fees.
“These guys aren’t living in reality,” said Brad Balter, chief executive of Boston-based hedge fund investor Balter Capital Management.
A critic of the industry's extravagant ways and a longtime proponent of lower-cost mutual fund-like hedge funds, or liquid alternatives, Balter said many high-spending hedge funds will eventually have to change their ways and become more like their more humble mutual fund cousins in terms of compensation, perks and other costs.
But there are few signs of dramatic change.