CpTrader; Thanks for the read; i wondered if Goldman earned even more than that, since the article mentioned, about 9 billion in earnings for GS, and about 16 billion paid in bonuses that year.
Agree completely. On a different note it is interesting to see the exponential rise of quant based research in the past few years and the shift from longer term to short term oriented strategies. One would conclude that the law of ever-changing cycles will eventually bring quite a few of these funds down and macro managers may once again rise to the top.
'On a different note it is interesting to see the exponential rise of quant based research in the past few years and the shift from longer term to short term oriented strategies' the thing with quant is that nearly all of it is termed proprietary and that results in even simple moving average based strategies employed with ruthless discipline and advanced money management remains secret under the cover of 'quant expert phd' in control.
it appears to me that firstly, no hedge fund manager is an unconstrained alpha hunter, incentives and disincentives get in the way of them all eg. they have masters to answer to and deadlines to meet (can't have a bad Q4, so they ratchet up the risk) Beyond a certain threshold of AUM, the management fee at 1-2% actually starts to matter a lot whereas below that threshold its all about the 20% performance fee. This influences risk taking. They become closet beta generators once they reach a certain size or alternatively they maintain the same risk posture and eventually blow up. Size and performance are inversely correlated. Anyone see the segment on CNBC yesterday about the FoF firm Mayercap? They invest exclusively in small funds for the reasons I described plus, small managers wake in the night wondering about their portfolio. The big guns would never admit this truth.
So what is the answer? Clients complain about both so how does one balance the two to achieve a happy medium? Some people want 15% a year, but that's not why they invested with you when you were small and making 50% a year. My guess is just keep gathering funds until the 50% per annum starts to slide, then close.
at the risk of veering slightly off topic (I apologize in advance)... a response to ktm ktm - I don't know where in the client manger chain you are but in terms of delivering the goods to investors at a reasonable cost, I'd say these new synthetic hedge funds (aka replicators or clones) look interesting. They look like bad news for hedge fund managers however. Ironically, Goldman is one of the handful of firms to have recently announced entry into this niche: "...Goldman Sachs has become the first bank to create a replication tool in a move that could shake up the $1.3 trillion hedge fund industry." Goldman will charge a flat fee of 1% to do this and what they are actually doing is implementing an algorithm that mimics a broad array of hedge fund strategies. Another pioneer, Professor Harry Kat at the Cass Business School (London) is doing likewise through a new entity called "FundCreator". And more firms are following suit. My 2nd point is that since small hedge funds provide proven alpha beyond what large hedge funds can achieve, the economics of the business should realign so that smaller funds garner a more attractive fee structure relative to large funds. Ironically the new push into the sector by pension funds is working against this. Pension funds by nature seek out larger hedge funds..and I'll stop here.. Here's the link to the Emerging Fund Manager segment on CNBC http://www.cnbc.com/id/15840232?video=172799044&play=1
With such a relatively horrible performance for 2006, no question that quant funds still have much to prove. I mean, wow, Windows/XP is at 30 million lines of code and Vista is at 40 million...and both OS's are dumb as shit. They can't talk, they can't see , they can't reason....they have no intuition. When are machines with software going to better the performances of highly trained / experienced traders ?
According to someone who said he was studying the SEC filings of Buffett, Buffett has been averaging around 14% since 2000 with no down years. Not as good as his longer term 20% average but not shabby either. People who diss Buffett aren't doing themselves any favors. It isn't a percentage play.
Probably the only intelligent way to approach that is to look at Berkshire Hathaway's stock since 2000, no? Of which it has doubled since 2000 which puts at 11% a year give or take. No idea about the dividends it pays. http://finance.yahoo.com/q/bc?s=BRK-A&t=my&l=on&z=m&q=l&c=