This content is from: Portfolio

The Morning Brief: Are Investors Giving Up on Hedge Funds?

As the stock market gets off to rocky start and investors try to guess when the Federal Reserve will more aggressively taper and start raising interest rates, investors are increasingly signaling that hedge funds may not be the best place to maneuver through this uncertainty. On Friday, eVestment reported that December was the first month in the past six months that more money was redeemed from hedge funds than were invested in hedge funds. Investors redeemed an estimated $4.4 billion during the month, according to the data tracker. In 2013, total hedge fund industry assets increased 10.1 percent, or $262 billion, to $2.86 trillion, putting industry AUM just below its all-time peak of $2.94 trillion set in June 2008. Most of the increase was the result of performance.

Last week, meanwhile, hedge fund flows as measured by the SS&C GlobeOp Capital Movement Index declined 3.56 percent in January, a 12 month-high. Perhaps investors were disappointed that the average equity hedge fund way underperformed the S&P 500. Also, most macro funds were flat, a lousy year by any measure.

On the other hand, Barclay’s announced on Friday that its annual investor survey indicates that the hedge fund industry could take in up to $80 billion in net new money in 2014. That would constitute a 25 percent increase over last year and the largest amount since 2007, according to the investment bank.

Jeffrey Smith’s New York–based Starboard Value, which owns 15.2 percent of the shares of Wausau Paper, told the pulp and paper company it has nominated a slate of three candidates for election to the board at the company’s 2014 annual meeting. Among the nominees: Smith, who serves on the board of Office Depot and Quantum Corporation. He previously served as a member of the board of Regis Corporation, Surmodics, Zoran, Actel and Kensey Nash, and was the chairman of Phoenix Technologies.

New York–based Corvex Management’s Keith Meister rejected CommonWealth REIT’s offer to join its board of directors. Instead, the hedge fund founded by Carl Icahn’s one-time right-hand man and Related Fund Management, which collectively own about 9.6 percent of the company, announced they intend to nominate their own slate of five individuals to CommonWealth’s board.

Shares of Herbalife fell another 2 percent Friday. Investors now have a three-day weekend to ponder whether they still want any part of the multi-level marketer of nutrition supplements.

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