yeah, because they're hugely leveraged on margin. one of the good things that came out of the crash was eliminating 10:1 margin for the individual. how about doing the same against funds? and i generally really dislike this kind of regulation...
Yep, they were hardly traders were they? As far as trading goes they were just newbies buying the dips all the way up. Analysis or customer relationship management and position management are very different skills. It was about asset gathering and fees. The people who raised money were usually people in client facing positions in I banks. The giveaway was how all the funds required Ivy League/Bulge bracket backgrounds - because these people could trade ? No, because they were what the overly educated people who allocate funds wanted to see. The other giveaway was how they were prepared to pay literally anything to anybody with any kind of track record (and Ivy/Bulge credentials), why? because they had the money but lacked people who could produce returns on that money. I am not saying they were not smart - you could put together a fund with a few hunderd thousand each AND NO TRACK RECORD and raise billions and thus multimillions of fees. I mean, even the startup had an option payoff profile, never mind what as to come next. Next you could sell your startup company that cost virtually nothing to form just like a dot commer in 99. Only problem was it was like if the dot com party ended in 97 or 98 so it probably won't go down in history as a Sout sea or dot com type bubble. There ARE Hedge Fund Managers out there who can trade and I am not addressing my remarks at them , but at the new wave from the I Banks etc who can't trade worth a damm, as we have just seen. Clueless newbies.
It was all these newbies with threads on how to start a hedge fund. The more the market went up this year, the more threads I saw. They got all in at the top and now there's no one to catch their fall. I really think that half the hedge funds out there were never qualified to handle OPM. Particularly the ones who found an edge through some quantitative analysis. Leave your algebraic equations for the universities. The markets require discipline, street smarts, and over all balls to overcome drawdowns, but also to know when to cut the losses.
The hedge fund industry, and quantitative analysis are still very much intact, imo. As to the former, it is still in the early stages of a typical S type curve of a strongly growing, emerging industry, as it is becoming conventional wisdom among institutional asset managers to use hedge funds to reduce portfolio risk. As far as the general correlation and quantitative funds, I don't think a sample size of 10 out of almost 10000 is significant per se. As to quantitative funds, the implication that all of these have had severe drawdowns, or outsized drawdowns compared to discretionary funds, seems unlikely. Some quantitative funds, no doubt, were net long volatility, short CDOs, etc, and did very well. I do think that recent events will lead investors to more closely analyze the source of returns of hedge funds; is it coming from alpha or is it coming predominantly from beta towards extremely risky asset classes, and this is good for the industry going forward. I suspect over time, fees towards exposure to beta will become somewhat "index-ized" or commoditized, leading towards less of a justification for high fees, just as is happening in many "closet-index" long mutual funds that don't demonstrate long term outperformance with equities. I think there will always be a premium for demonstrated alpha, however.
I don't know where to put this, and it may be old, but funny nonetheless (gotta give it a minute). <object width="425" height="350"><param name="movie" value="http://www.youtube.com/v/LtcnXLDnXvs"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/LtcnXLDnXvs" type="application/x-shockwave-flash" wmode="transparent" width="425" height="350"></embed></object> Don