According to Sheelah Kolhatkar a features editor and national correspondent for Bloomberg Businessweek investment in Hedge Funds is likely to reduce. Will her predicted end of Hedge Funds have an effect on the Kenyan NSE?

The California Public Employees’ Retirement System (Calpers)–the largest pension fund in the U.S.–intends to divest all of the $4 billion it has invested in hedge funds, according to Bloomberg News. The reasons it gives are that they’re too expensive and complicated.

“We concluded that we would eliminate the hedge fund program in order to reduce the complexity, reduce the costs in the program, particularly in relation to our view that given the scale of Calpers, we would not be able to scale a hedge fund program to a size that would really move the needle,” said Ted Eliopoulos, the interim chief investment officer of the $298 billion fund.

As the stock market has climbed to ever higher heights, the performance of most hedge funds have looked poor by comparison, especially in light of the fees that they charge–generally 2 percent of assets and 20 percent of profits. Calpers paid $135 million in fees for its last fiscal year, according to Bloomberg, and its hedge fund investments earned returns of 7.1 percent.

Generally, as hedge funds have evolved from innovative little operations into slick multi-billion dollar firms, generating returns has become much more difficult. Yet the fund managers earn hundreds of millions of dollars in fees just for managing the money. As Bloomberg Businessweek reported last year, the industry’s best period is likely behind it.

The writer concludes, “No matter how many $100 million Picasso paintings they purchase, hedge fund moguls are not magicians. The sooner investors realize that, the better off they will be.” Read her full article here

Data from the NSE shows that in the sixteen months preceding April 2014 foreign participation was above 50% for eleven of those months. Hedge funds which specialise in frontier markets form a part of the foreign participation. Hedge funds such as Frontier Market Asset Management, founded by Lawrence Speidel last year put money in companies such as Britam. The demise of hedge funds mentioned by the Sheelah would result in reduced liquidity in Kenya and other frontier markets.

*additional material added on 17th September 2014.