Hedge funds around the world have charged their clients $1.8 trillion in fees since 1969 despite the fact that most of the active managers have underperformed the market during that time, says a new report from hedge fund investor LCH Investments.
Invest with Confidence:
- Follow TipRanks' Top Wall Street Analysts and uncover their success rate and average return.
- Join thousands of data-driven investors – Build your Smart Portfolio for personalized insights.
Over the past 55 years, hedge funds have kept roughly half of the money they made in the stock market, according to LCH Investments, a private investor in hedge funds that is part of Swiss banking group Edmond de Rothschild.
Hedge funds are known for charging their clients exorbitant fees, often for subpar returns. In 2024, most of the largest hedge funds in the world failed to beat the returns of the benchmark S&P 500 index despite a raging bull market in the U.S.
Subpar Returns
The largest hedge fund in the world, Bridgewater Associates, saw its flagship Pure Alpha fund gain 11% in 2024, less than half the S&P 500’s 23% gain on the year. Another leading U.S. hedge fund called Citadel, which is run by billionaire investor Ken Griffin, saw its flagship Wellington fund post a 15% gain in 2024.
LCH Investments notes that hedge funds don’t typically adjust or refund their performance fees when they underperform the stock market, incur losses, or go out of business. Last year, 326 hedge funds around the world closed in the first three quarters, according to research firm HFR.
In its report, LCH Investments concludes: “What comes out of our research is that the fees paid by investors as a proportion of hedge fund gains are very high.”
Is the Vanguard S&P 500 ETF a Buy?
As most hedge funds are privately held, we look instead at the S&P 500, which most fund managers benchmark themselves against. The Vanguard S&P 500 ETF (VOO) currently has a consensus Moderate Buy rating among 504 Wall Street analysts. That rating is based on 402 Buy, 95 Hold, and seven Sell recommendations issued in the last three months. The average VOO price target of $623.10 implies 13.24% upside from current levels.
