Morgan Housel has a fantastic piece in The Motley Fool imagining a conversation between two hedge fund managers. It tells a pretty accurate, and damning, story of hedge funds’ under-performance, high fees, and general lack of transparency.
Most people, and especially most teachers, don’t personally invest in hedge funds. To them, hedge funds may be some sort of a distant and poorly understood creature of Wall Street. But one of Housel’s hedge fund managers says that, “We’re basically a conduit between public pension funds and Greenwich real estate agents.” The other fellow says “Cheers to that.”
Wait, what? Teacher pension plans are heavily invested in hedge funds? Yes, yes they are. Teacher pension plans and other public-sector pension funds have dramatically ramped up their investments in hedge funds and other forms of private equity over the last 30 years. In fact, pension funds in both the public and private sector are becoming some of the hedge fund industry’s most dependable clients!