This year has been challenging for hedge funds, but some of their managers seem to be taking out their frustrations on publicly traded companies, to the detriment of investors.
Hedge funds experienced negative fund flows and redemptions of more than $14 billion in the first quarter. Over the past two quarters, investors pulled almost $17 billion from hedge funds, marking the largest outflows since 2009.
In looking over the industry's performance, it is easy to understand why the tide has turned against hedge funds. The industry has significantly under-performed the overall market, according to Hedge Fund Research.
The HFRI Composite index has fallen 4% since the second quarter last year, under-performing the S&P 500 by 6%, and it started 2016 off with the worst January since 2008. Taking a longer view, the HFRI Composite Index is up just 1.7% over the past five years, compared with more than 53% for the S&P 500.
This has led companies such as American International Group and MetLife to redeem billions from many of their hedge fund managers.
AIG has submitted notices calling to redeem $4.1 billion of its hedge fund holdings through the end of the first quarter.
During its quarterly earnings conference call, MetLife said that it would reduce the $1.8 billion it has been allocating to hedge funds to $600 million over the coming years.
History has shown that too many competitors in an industry more often than not leads to a challenging business climate. As the competitive dynamics climb, companies may adopt a riskier profile in order to hit their targets.
According to some estimates there are more than 10,000 hedge funds, while other figures point to as many as 15,000.
Either way, that is a significant number of companies chasing returns.
Late last month, Third Point manager Daniel S. Loeb wrote to investors, saying that "there is no doubt that we are in the first innings of a washout in hedge funds."