Not to endlessly repeat ourselves, but the hedge fund industry has hit a bit of a rough patch. Maybe even a terminal one. And if indeed this is the end of hedge funds, who’s responsible? Is it the hedge fund managers themselves, for having bitten off far too many assets to effectively manage ‘cause they get a 2% cut of it no matter what? Or for having failed to evolve and respond to changing macroeconomic circumstances? Or for just being really shitty at their jobs? Don’t be ridiculous: This is America and it is 2016; no one is ever responsible for their own misfortunes. First, lily-livered investors got all scared of leverage and illiquidity after those two things bit them in the ass during the financial crisis and started shying away from them, seriously impairing hedge funds’ ability to turn a 0.1% return into a 10% return by levering the hell out of an unsalable asset and then marking it up slightly. That made them vulnerable. And then came quantitative easing and the sky fell in on volatility, stealing the very air from the lungs of formerly majestic Hedgeosaurus Rex, sending him choking and wheezing to the grave.
And according to Welch, quantitative easing from global central banks has removed volatility from the marketplace, and inadvertently robbed hedge funds of a key ingredient to their success.
"You have this environment where the tools that a talented hedge fund manager can use to try and drive performance just simply weren't available to them," Welch added.