The founder and chairman of Tiger 21, Michael Sonnenfeld, declared hedge funds as “dead” as an investment class for the super rich. Tiger 21 members’ allocation to hedge funds has decreased to 2% from 12% over the past 16 years. Sonnenfeldt suggested that investors could achieve similar exposure with fewer fees by investing in index funds or private equity. Private equity currently holds the largest allocation in Tiger 21 members’ portfolios at 29%, followed by real estate at 27%, public equity at 19%, cash at 12%, and hedge funds at 2%.
Tiger 21, a network of ultra high net worth investors and entrepreneurs, has 106 groups in 46 markets with 1,300 members collectively managing over $150 billion in assets. Most members are first-generation wealth creators who have sold their companies and are seeking to preserve their wealth. Established in 1999 by Sonnenfeldt, the group provides a platform for members to exchange advice on wealth preservation, investments, and philanthropic endeavors. Sonnenfeldt mentioned that hedge funds have been on a decline for over a decade, as the fixed fees became less appealing in a low interest rate environment and hedge funds struggled to deliver exciting returns.
Hedge funds are actively managed funds that focus on non-traditional assets and employ risky strategies. Sonnenfeldt noted that hedge fund returns tend to rise with higher interest rates. Members of Tiger 21 have found that they can achieve better results by allocating more to index funds such as the Invesco QQQ ETF and SPDR S&P 500 ETF, which offer greater liquidity and lower fees. In 2023, the Invesco QQQ ETF rose by 55% while the SPDR S&P 500 ETF gained almost 25%. Global hedge funds returned 13.3% last year, rebounding from a -6.8% in 2022. However, between the last quarter of 2014 and the end of 2023, the hedge fund industry experienced net outflows of more than $217.3 billion, according to data from investment company Preqin.
Charles McGrath, assistant vice president at Preqin’s Research Insights, highlighted that the hedge fund industry has been in a state of decline for much of the past decade, with investors continuing to withdraw capital from the asset class despite overall positive returns. A growing number of investors believe that their hedge fund allocations have fallen short of long-term expectations. Sonnenfeldt emphasized that Tiger 21 members have recognized the potential for higher returns by increasing exposure to index funds with lower fees and greater liquidity. The shift away from hedge funds reflects a broader trend in the investment landscape towards cost-effective and transparent investment vehicles that offer competitive returns.
