Make no mistake, it’s been a tough year for the 2 and 20 crowd. 

Between an inexorable slump in commodities (which has led directly to a burgeoning HY crisis), the volatility that comes with pervasive monetary policy confusion, a “surprise” China deval, tail risk galore, and a variety of spectacular blow ups (see Ackman and Valeant), it’s become abundantly clear that when it comes to truth in advertising, hedge funds fail miserably as protecting against massive fat tail events apparently isn’t their cup of tea after all (see here for more).

Even risk parity has suffered in an environment characterized by increasingly interdependent and correlated markets.

Well, now that pension funds (and everyone else for that matter) have come to the realization that in a market backstopped by the central bank put, it makes a lot more sense to just buy the SPY for a fraction of a percentage point (in terms of expense ratios) than to pay 2 and 20 for someone to ride the beta train with the most leverage possible hoping that the Fed will prevent any events that actually need hedging, and now that HY is finally rolling over just like we said it would, the liquidations are multiplying. 

“Funds depend on institutional investors such as insurers and pension schemes, who cannot afford to miss minimum return targets and are themselves under pressure from boards that oversee investments,” FT writes.

“Most [fund] managers prefer to haggle like rug salesmen at a bazaar; institutional investors would rather shop at Ikea,” says Simon Ruddick, founder of consultant Albourne and that means the trend shown in the following graph is likely to reverse going foward:

In a sign that things are getting progressively worse, “the number of funds liquidated climbed to 257 [in Q3], up from 200 in the previous three months,” Bloomberg notes, citing Hedge Fund Research Inc.