Goldman Sachs' pvt wealth unit sees 4% hedge-fund returns

Goldman Sachs Group Inc's private- wealth-management unit expects hedge funds to return an average of four per cent to five per cent over the next five years, as the industry struggles amid low interest rates.

“Everybody hopes to get the five hedge funds, all of whom are going to have 15 per cent returns,” Sharmin Mossavar- Rahmani, chief investment officer of Goldman Sachs Private Wealth Management's Investment Strategy Group, said. “People need to be more realistic.”

The $2.19 trillion hedge-fund industry last year trailed global stocks for the fifth time in seven years, posting a 6.7 per cent gain, according to data compiled by Bloomberg. The MSCI All-Country World Index returned 17 per cent in 2012, and the Standard & Poor’s 500 Index rose 16 per cent.

Federal Reserve officials said last year they will keep interest rates near zero as long, as the jobless rate is above 6.5 per cent and inflation is forecast to be 2.5 per cent or less. Previously they said they will keep rates low through at least mid-2015.

Mossavar-Rahmani said investors are ‘overestimating’ how much hedge funds can return in excess of market indexes. While some managers may do well, the low-interest-rate environment makes it difficult to produce double-digit returns, she said.

"They don't walk on water," Mossavar-Rahmani said.

Equity funds and event-driven funds, those that invest in companies undergoing transactions such as mergers or spinoffs, may benefit if stock markets rise next year, she said.