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Once brilliant hedge fund managers starting to lose some sparkle

Assessing the health of the hedge fund industry is a complicated process. Frankly, it’s a confusing one. They had a rough year in 2013, getting trounced by cheap index funds, but most customers seemed to understand. Last year was a bull market and a correction was in order. Trillions more in assets were pumped into hedge funds despite the relatively poor performance.

But now, in month two of what many see as a market correction, several hedge funds are still struggling, particularly macro funds that just can’t seem to guess right. The Financial Times on Tuesday reported on a “brutal” October for the hedge fund industry, with Moore Capital, Tudor Investments and Fortress taking it on the chin in particular.

Accompanying that report is a similar one from Financial News, referring to financial turmoil in the markets as a “bloodbath” for hedge funds like Jana Partners and Discovery Capital Management. But unlike last year, institutional investors are no longer sitting on their hands.

Two of the largest pension funds in the U.K. just announced plans to limit their exposure to hedge funds. This comes just a month after CalPERS, the largest pension fund in the U.S., announced it would pull all of its investments from the industry. Large fees and underperformance have finally taken their toll. Somewhat ironically, the best performing hedge fund this year – family office SAC Capital – isn’t even taking fees.

All the scurrying has inspired several studies that look at the art of money management. Many have found that active management, over the long haul, loses out to patient investing. Another looked at thousands of mutual funds and found that only two ranked in the 20% for five straight years. In fact, the top 10% had a better chance of ranking toward the bottom the next year than they did staying near the top.

And now a study on the personal financial habits of money managers has surfaced. Researchers looked at 84 mutual-fund managers in Sweden, studying their fund stock portfolios, real-estate ownership, total wealth, and personality, according to The Atlantic.

Compared to people of similar age, income, and education background, money managers held no advantage whatsoever when it came to personal investments. In fact, the only real difference was that money managers traded too much and stubbornly held on to sinking stocks for too long.

Hedge fund and other money managers are undoubtedly smart people who will again have their day in the sun. But their street cred has certainly taken a hit this past year.

Big Bonus Expectations (eFinancialCareers)

Oh what a difference a year makes. U.S. bankers find themselves much more optimistic about their bonus for 2014 than they did a year ago. But not all will receive the same bounty.

Hiring, Firing and Pay at UBS (eFinancialCareers)

UBS has just released its Q3 results. Ostensibly, they are very bad for its investment bank, yet hiring and pay are still on the rise.

Deutsche Replaces CFO (WSJ)

Deutsche Bank is replacing its longtime chief financial officer Stefan Krause following a tumultuous year. Goldman Sachs exec Marcus Schenck will take his job. Krause will be given another role within the company, which has got to be a bit awkward.

Poaching War For Cyber Talent (Bloomberg)

Business has been good for cyber security personnel at big banks. Top IT security experts can now earn more than $1 million a year, more than doubling their compensation ceiling from just a few years ago. A poaching war has ensued.

Good Things Come In Threes, Apparently (Bloomberg)

Goldman Sachs has named Alex Dibelius as co-chairman of its investment-banking division. Dibelius joins Christopher Cole and Gordon Dyal, giving the bank three co-heads, which has become more commonplace in recent months. Credit Suisse just named a third co-head of its investment bank.

Ratting Works (Dealbreaker)

More than 250 people a day are tipping off Swiss authorities about alleged tax dodging, which likely isn’t a good thing for Swiss banks. Offering up payment for tips is appearing to be a worthwhile idea.

MBA vs. CFA (Business Insider)

Here are 11 reasons why an MBA is better than a CFA.

Buzz Around the Office

Marketing Manager Position Likely Open (CNBC)

Wal-Mart added a new subcategory for Halloween costumes this year: “Fat Girl.” It has not gone over well.

Quote of the Day: “I am not disputing that there is a very small fraction of managers who are extremely talented. But there are very, very few of these superstars, and the average investor probably can’t afford to invest with them anyway.” – study co-author Andriy Bodnaruk.

AUTHORBeecher Tuttle US Editor

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