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Hedge Funds Miss the Boat Again

  1. high net worth individuals don't invest in hedge funds to outperform the market
  2. If a guy is paying 2 and 20 or even 1 and 10 what is he paying for if not to outperform?
  3. not to be distracted from his career as shortstop for the New York Yankees.
  4. There was a recent article in the WSJ where pension plans are pulling their money (by the billions) out of hedge funds due to lackluster performance. I think the disaster with VRX which garnered major headlines didn't help the hedge fund industry.

    This article mentions that the failure to generate alpha by hedge funds was widely known as back as 2006...


    This paragraph sums it all up...

    "...However, as of 2006, it was already fairly reported in the financial trade press that hedge funds did not deliver much if any alpha. Indeed, the hedge funds were increasingly acknowledging that and stressing that irrespective of that nasty little lack of any real alpha problem, they were still an essential addition to any savvy investor’s portfolio by virtue of providing “alternative” or “synthetic” beta.

    But there’s no justification for paying “2 and 20” for alternative beta. And as we noted in early 2007, investment products were being launched that delivered alternatve beta at much lower fee levels."
  5. He's paying for the right to be called a "sophisticated investor" as defined by SEC. :cool:
  6. You're correct insofar as this was the intention of the first hedge fund, in fact called a "Hedged Fund", in 1949.

    That said, clearly expectations have changed over the years: both the holdings and the high fees indicate that hedge funds are expected to significantly outperform the market by much (if not most) of their customer base, whether they will explicitly admit it or not. The hedge fund field is overcrowded and IMO the typical fund isn't adding much more value than mutual funds did in previous decades, yet is charging far higher fees.

    Moreover, hedge funds in the 1990's and even the early 2000's were a good way to get exposure to consistently and obviously outperforming managers (e.g., Renaissance Technologies). Now, many of those top managers have amassed fund-sized fortunes of their own and have therefore gone totally private, depriving the available management pool of much of its proven top talent.
  7. To earn 7percent a year every year regardless of what happens in the rest of the markets.
  8. true, most would be better just buying a low cost index funds, but they don't even want to do that, too much time away from what they do. They want to be introduced to a fund manger by a trusted friend and just turn it all over and tell them, here! you manage it! And in times of finanacial crisis they don't want to be watching cnbc. 2/20 is huge sum of money over a lifetime, but some of these athletes have very short earning life and by midlife they can manage their money a little more closely, and then yes, for 2/20 you better be outperforming the index.
  9. Performance hedgefunds. Chart from Bloomberg. es.jpg
  10. [​IMG]
    Meredith Jones, MJ Alternative Investment Research
    Alternative investments. Author: Women of The Street: Why Female Money Managers Outperform
      • May 17th, 2016
      Hedge Fund Truth - Don't Believe Everything You Read
      It's time for another animated installment of The Hedge Fund Truth! Turn up your speakers, close your door and watch this week's video blog. This video looks at some of the truths and fictions around the hedge fund industry, focusing around recent bad press about returns, fees and a shortage of talent. It asks if the entire industry should be tarred with the same big brush or if there is nuance that investors and industry watchers may not have considered. Are hedge funds inherently BAD for investors, or do we need to gather more data and adjust our thinking? Enjoy!

  11. Anyone know if there is a Hedge fund that lowers the 2% at end of year cause costs were less that year? IMHO, I can understand the fee, everything costs big money when trying to make big money, but if you have "mastered your domain", is it too much to ask the fund itself cough up half of operating costs in profitable years? Not all years profitable but really can't understand why, but those who making the decisions that greedy to not take part of the 20% to kick for operating costs? All the business I have started, as owner, I had to pay out of my pocket. And I can't see how they lose what they lose, they suppose to be the best of the best, how the heck do they have losing years in huge Bull market? I know if there is huge redemptions going on, can't always be greater than S&P Index, but if you starting a hedge fund, should be saying you doing better than Index to start or perhaps much less drawdowns.

    It does shows retail, they can do as well or better if they have well back tested method, and go back far enough to test in down years of S&P500 index.
  12. Ultimately, what's the difference between a hedge fund and a mutual fund?