We are talking about hedge funds here, not mutual funds. Most hedge fund owners or portfolio managers are heavily invested (significant fraction of their net worth) in their own fund (though, as one can imagine, there are some tricky bits there like they like to be invested in the least scalable vehicles/strategies).
And where is the proof please? And what could possibly prevent them from being long and (secretly) short at the same time - risk is zero for them - just to look "fully invested"?
The topic is "Hedge funds keep two-thirds of profits", so it's pretty obvious we are not talking about mutual funds. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3428165 https://www.hflawreport.com/2540236...closure-duty-to-update-and-verification.thtml
True, according to https://www.institutionalinvestor.c...t-They-re-Also-Less-Likely-to-Take-Your-Money
Because if you already have 50% of your PNW invested in your fund, you not going to have the required liquidity to have reverse exposure. Further, most people would not have the access to the same leverage and products as their fund (so it virtually impossible for them to reverse their exposure in a private account). Finally, it's a massive SEC compliance risk which no sane manager would take.
Some top-line names even use funds closed to outside investors as an advertisement for their less interesting open funds (you can guess who that is). If there is a 4-Sharpe strategy, it's likely to end up in a partner/employee-only vehicle.
Come on, hedging their bets can easily be obtained via options or other leveraged instruments. And the "documents" you listed do not prove a thing. Quick example, and I quote: "While such investments [in their own hedge funds] are not legally required, they are a tradition and an expectation among institutional investors." Oh really? Hmmm.... And think about it for a second, if 50% of the mutual fund owners do not invest a single penny in their own funds, what does this tell us about the rest of this "industry"...?
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Hedging what bets? Most funds don't just go "long" or "short", it's a strategy that is pretty involved. For example, do you think you could trade treasury bond basis, CDS or variance swaps in your personal account? Yeah, really. It's expected and managers do it if they want to raise cash from institutional investors. Some ET denizen that manages to raise a few million from his high school buddies without investing in his own vehicle is not really important for the purposes of this discussion.
Cheerleading for the hedge fund industry is not really a "discussion". In any case and as a group, money managers cannot even trail the S&P 500: https://www.cnbc.com/2019/03/15/act...th-year-in-a-row-in-triumph-for-indexing.html In other words, an index fund performs better than these "actively" managed funds, in the long run (money managers hate this fund, for obvious reasons...) "My regular recommendation has been a low-cost S&P 500 index fund" (Warren Buffet)