The WSJ today reported that:
A growing exodus from hedge funds extended to two of the biggest names in the industry Tuesday, Tudor Investment Corp. and Brevan Howard, as disenchanted investors increasingly shun what was once the hottest place to put money.
The funds’ problem is clear: They just aren’t performing.
Hedge funds and actively managed mutual funds have been underperforming since financial markets began their rebound in early 2009. The average hedge fund is up 3% this year through the end of July, according to researcher HFR Inc., less than half the S&P 500’s rise, including dividends.
This comes as no surprise, of course. It is well-established that you're better off, over the long haul, investing in passively-managed index funds rather than actively-managed mutual or pension funds. Over time, as numerous studies have shown, nobody meets the market once you adjust for risk and the survivor bias. Why? In part, at least, because the managers of active funds are subject to a whole slew of cognitive biases and errors that tend to adversely affect their decisionmaking.
Don't believe me? Fine. But before we talk about it go read Burton Malkiel's magisterial work A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing and then we'll talk. It lays out the evidence in favor of passive investment management "in terms so plain and firm as to command their assent."