By Nishant Kumar and Macarena Munoz
(Bloomberg) --Crispin Odey, whose flagship hedge fund is on course to record its worst year since starting more than two decades ago, said money managers specializing in picking stocks and bonds are being driven out by “mindless” passive investing.
“This has been a difficult year for active managers,” Odey said in his November newsletter to investors, which has been seen by Bloomberg News. “Passive investing has taken money which typically would have been in the bond market and deposited it in the equity market.”
Investors unhappy with the cost and performance of active funds are increasingly shifting to index- and exchange-traded funds. They pulled $67 billion from active mutual funds while adding $70.6 billion to passive funds in November, the most in both cases this year, data compiled by Morningstar Inc. show.
Hedge funds suffered net withdrawals of $80 billion through Dec. 16 this year, the first outflows from the industry since 2009, according to preliminary estimates from data provider eVestment. More hedge funds have closed than started in 2016 for the first time since at least the start of this century, when Eurekahedge started compiling the data.
A spokesman for London-based Odey Asset Management, which oversees about $8 billion, didn’t reply to an e-mail seeking comment.
The Odey European Inc. fund lost almost 48 percent through November this year, more than the 43 percent it shed in 1994 as bearish bets against stock markets failed to pay off. Founding partner Odey, who backed the U.K.’s decision to leave the European Union and has been a vocal critic of central banks’ intervention in the economy, predicted earlier this year that British stocks might plummet 80 percent. The FTSE 100 index in fact rose about 13 percent in 2016, partly because of the drop in the pound.
In 2017 “central bankers will have to respond to what their governments are doing fiscally, rather than bolstering asset prices with low interest rates,” Odey wrote in the newsletter. “There could be trouble ahead.”
To contact the reporters on this story: Nishant Kumar in London at [email protected] ;Macarena Munoz in Madrid at [email protected] To contact the editors responsible for this story: Neil Callanan at [email protected] Paul Armstrong, Christian Baumgaertel