actually as I am reading on oil , here is an example of a fund ~600billion $ http://en.wikipedia.org/wiki/The_Government_Pension_Fund_of_Norway
I don't really agree with this. In the 1B range, suddenly everyone wants your flow, and you start to dictate the rates you pay, sometimes even paying less than zero. Your flow makes flow (or so ppl believe). And this opens up a lot of low risk trades that are too tight for other investors, who have higher costs. Own the world, and rent it out to chumps, for a few lazy bps.
I donât agree but am speaking generally about the majority of the big success stories in the overall industry rather than some individual (specialist) hedge funds/CTAs for which your capacity ideas might apply. Generally speaking the big hedge funds/CTAs have become big and stay big because of the ability to generate alpha and this is true by definition or as an inverse catch-22 type of situation (I know that is an awkward explanation so will try to improve on it). Maybe this is better. You know for certain and without question the way the successful hedge funds/CTAs got big and then stayed big and sometimes even keep growing from big to huge had to be because of generating alpha because if they didnât generate Alpha they never would have never gotten big in the first place. This is similar to the statement that a good bet is that generally a player in the NBA is a better basket ball player than the other guys he played with on his high school team due to the fact he is playing in the NBA while the other guys for whatever reason or circumstance are not playing in the NBA. It is more of a Darwinian explanation for alpha than a personal opinion. See if the above wasnât true and instead this statement was true: â¦then once a hedge fund/CTA became big and it started to generate less and less alpha and thus turned into a huge beta (index) type of fund they wouldnât be able to charge fees because the asset allocators would redeem all the money and reallocate it to an index fund with lower fees. Maybe there are individual anecdotal examples of this but for the majority of the big guys are big and remain big because they are better than those that arenât big. It loops back to maybe there is a guy out there that could have been a better basket player than Michael Jordan but instead after high school this guy decided to stop playing for personal reasons or other circumstances but that is not the way to bet. If someone is big (or in the NBA) it is very probable they are big because they generated more alpha (are better basket ball players) than the guys that are small (or not in the NBA). I know that is quite a ramble of repetition but I hope I finally made it reasonably clear. Maybe but for certain (back to the Darwinian argument) there are edges that the big guys know that they used in the first place to get big and continue to exploit to stay big that are quite flexible when it comes to capacity. If this wasnât true there wouldnât be successful big boys at the top that stay there for years and years and years. The ability to generate alpha depends far more on available talent than size. The big guys generate more alpha than the small guys by definition; if they couldnât generate more alpha then they wouldnât be big. There could be some truth to a statement such that the talented guy could produce a better ROI if he was running smaller size than he chooses to run but he runs size because (back to Dr Evil) he would rather make billions than millions. But the above statement doesnât negate the cold Darwinian truth that the (most) big guys generate more alpha than the small guys and the proof is if they didnât they never would have got so much bigger in the first place. What exactly do you mean by a âlarge betaâ bet? I am going to take a guess and go with if a hedge fund buys IBM because they think it is going to go up like a homesick angel while on the same day an index trader buys IBM because he needs the exposure to reduce tracking error do you view the first as a beta or alpha bet? I personally view such trades and big asset allocator stuff like shorting one sector/index etc verses another or just outright putting it on as an alpha trade and those are the kind of things you can do with billions and billions of assets under management and make millions and millions and sometimes billions in performance fees. Anyway just curious about how you define your âlarge beta betâ term. I am kind of surprised someone on this board would ask such a question but maybe you are just naïve or inexperienced rather than purposely playing the âwind up gameâ so I will give you a straight answer. No that is not possible since such current and historical information is confidential and non-disclosure agreements have been signed between the hedge fund/CTAs and each of the asset allocators that have allocated them money. No hedge fund/CTA is going to risk their positions/style/leverage etc being leaked to competitors and no asset allocators is going to sabotage their own investment so that is why business requires a non-disclosure agreement to be in place. And on top of this the particular asset allocators where I work would never tell even me what the positions/ trades etc their hedge funds/CTAs are doing or have on because I am an internal proprietary trader and thus on the other size of the Chinese wall (google Chinese wall + financial institution if you need a definition). I can find out the performance of most hedge funds even if we have never allocated to them with several days drag time the same way the public can using the usual public information sources. The above is true of all investment banks, professional asset allocators, money management firms etc in the financial industry. What I was referring to in my earlier posts was the individual hedge funds/CTAs historical track records which are audited and in the public domain. These are available from numerous information providers in databases hedge fund/CTAs report performance to and usually offer analytical and statistical analysis tools with access. Also look at going direct to the individual hedge fund/CTA websites & asking for a prospectus etc they provided to potential investors for due diligence etc. and done right they won't think you are a "wind up" artist but a serious inquiry. No one is going to do your research for you so if you are really curious and not just on this thread to play âwind upâ games it is time for you to get to work. Obviously the smilie means you know the business! That said there are more times than not it would be nice to get a heads up just before the monster comes on or gets lifted or more usually blown out but that is not how the game is played. All the best, Cheers Smoker
Smoker, No it is not a wind up. We had the chance few weeks ago, to pour through Barclays hedge fund index for 2012.... I jumped on the chance of asking the same from your pool, so as to see what pro performances really look like. From BHF index, these look like : http://www.forexfactory.com/attachment.php?attachmentid=1116997&d=1358256799 and digging more was an eye opener. Obviously I can understand that when it comes to performance, sensibilities are on high alert. ..... How can we really find out how good are your gals in term of performance? I mean in terms of real number and metrics. bbl
You must have missed it in my above post but you can read about the meaning of Chinese walls and non disclosure agreements on the internet. You can analyze with provided analytical software the audited track records of many of the biggest Hedge Funds and CTAs in the databases of numerous data providers. This is pretty simple and reasonably easy to do. Good luck. Cheers Smoker
I think smoker and sle are talking about two different things. sle is talking about %age returns and smoker is talking about contentness with returns. A 1MM account can make 100% while it's hard for a 1Bn account to make 100%. There are strategies that a 1MM account can do that a 1Bn account can't do in the same scale. But if you were to invest your own money in another manager, you'd be better with investing in the 1Bn fund as he's probably proven to be adept at producing alpha over a long period of time.
Hi Smoker How could a manager logically/systematically determine the capacity for his HF/CTA? Any ideas/ links would be appreciated. Thanks!
In terms of the sle and smoker discussion... - capacity is not the same thing as size. Large funds arguably must have high capacity, but doesn't imply currently small funds can't have high capacity as well. - statistics consistently prove that smaller, emerging managers as a whole out-perform larger funds. Larger funds, especially post-2008, have gathered assets much faster for reasons that have nothing to do with their performance. Some would argue that larger funds have less operational risk, better transparency, etc.... but those of us with outstanding performance who've spoken to asset allocators know the real reason: headline risk. No fund consultant or pension advisor has ever lost their job for recommending an investment in Paulson's products, even if they proceeded to lose 50% in a year. Try explaning your selection of a small, no name emerging manager that just lost 50% at your next performance review.
The Barclay HF Index is pretty much in line with what I figure the big funds have been doing ... not so well lately. But it's like the old joke: You don't have to be able to outrun the bear; you only have to outrun the other campers. The big managers are competing to beat the other big managers. If I had a few billion to allocate, I would be continually looking for emerging managers. If I give somebody a $100k or even $250k, and he loses half, it won't show too bad. If I have a dozen of these small accounts, it only becomes a problem if they all blow up at once. How can you be a big manager and not have an R&D program? I don't understand why there isn't more demand for emerging managers.
But, why bother? By and large, the people with a few billion to allocate don't actually benefit personally from out-performance. It's not *their* billions actually being put to work. The pension advisors I've met are largely nice enough people... but their bottom line is their own paychecks (and enjoying the various conferences / events they get invited to). This is why HNW (in the $1-50 million net worth range) are a more natural target for emerging managers. A lot of these are first generation wealth, and as such they're a) personally involved, b) really want to make money.