Scaramucci: The hedge fund industry 'sucks less than it did last year'

Julia La Roche
Reporter

The state of the hedge fund industry has improved from a year ago. But this is not to say things are great.

That’s the assessment of Anthony Scaramucci shared with Yahoo Finance at the SALT Conference, a marquee industry event in Las Vegas that brings together politicians, financiers, and celebrities.

“If we were having this conversation last year, I’d say, ‘Wow, the state of the industry really sucks.’ But it sucks slightly less than last year,” said Scaramucci, the founder of fund-of-funds SkyBridge Capital.

“And the reason why it sucks slightly less is that performance is better, assets are up a little bit, and the real question, though, is are we in a secular decline for the industry or is this a protracted cyclical downturn?”

Across strategies, hedge funds have returned 3.71% through the end of April, trailing the S&P 500’s 6.5% rise, according to the Barclay Hedge Fund Index. The same period a year ago, hedge funds, in aggregate, had gained only 0.45%, the index shows.

REUTERS/Richard Brian

While performance has been lackluster, hedge fund industry assets have soared to a record high, with the total industry now above $3 trillion.

Scaramucci, who sold his stake in SkyBridge to Chinese conglomerate HNA earlier this year, believes that the industry is in a cyclical downturn. He also thinks that the industry has already bottomed and is on its way back up.

During the conference, Scaramucci asked hedge fund titan Bill Ackman, the CEO of $11 billion Pershing Square Capital, whether he thought the industry was in a secular or a cyclical decline.

“I think the hedge fund industry is a little like the mall industry,” Ackman said. “What I mean by that is I don’t think you can charge 1.5% or 2% and 20% of the profits and make people 8% or worse 5% or 2%. Because if you look what share of the profits is going to the manager, it’s a vastly disproportionate share.”

Ackman got his start in the hedge fund business back in 1992 when it was a much lesser known industry. Now, there are more than 10,000 different hedge funds. In recent years, hedge funds, in aggregate, have lagged the S&P 500, a commonly used benchmark to compare performance.

“This was a place where you made high returns,” Ackman said. “This was a boutique industry where people would deploy their capital to earn 20% type of returns. My view is the hedge fund industry should be a place where you earn high returns. If it’s not a high return strategy, well then you have to really compromise on your fees.”

At the conference, the consensus was that better days are ahead for the industry.


Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.

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