What % of Hedge Funds/Institutions actually make money?

Discussion in 'Professional Trading' started by iamnewuser911, Nov 25, 2017.

  1. Ray Dalio manages monster AUM and much of it is now in All Weather, a passive portfolio that's somewhat better than the standard 60% stocks 40% bonds. It mostly applies a bit of leverage to the bonds to put them on equal footing with the stocks when it comes to portfolio construction. That helps to put equal risk in the asset classes unlike 60/40 which has almost all risk in stocks. It's possible to get 10% return and less than 10% volatility p.a. with such a risk balanced approach.
    #21     Nov 25, 2017
  2. Sig


    This hits the nail on the head. Most hedge funds aren't trying to beat the S&P 500, in fact the incentive structure for fund managers is generally definitely not aligned with beating the index nor is it their stated goal. Judging a fund that's targeting certain max drawdown, volatility, and correlations against S&P performance is...naive, to be nice about it.
    #22     Nov 25, 2017
  3. toc


    I would disagree here a little. Most MNW invest in hedge funds because they can stand and sustain the "extra risk" that these types of funds bring on the table while promising "little extra" returns. That is why SEC's rules allow HFs to accept only accredited investors with above average risk tolerance i.e. good cushion in case the HF dips badly in returns.

    Some HFs do however bring in diversification to the overall portfolio of the investor. Ex: Commodity, Futures, Forex funds have main sales pitch that these types of investments offset risk and correlations with other markets.
    #23     Nov 25, 2017
  4. This isn't entirely correct...

    Firstly, the $160bn AUM is split roughly 50/50 between Pure Alpha and AllWeather. Secondly, the above description of the risk parity strategy is, shall we say, a little misleading. Thirdly, it's true that the recent regime has been particularly friendly to risk parity strategies, such as AllWeather. This may not be the case going forward.
    #24     Nov 25, 2017
    Spaceman3 and sle like this.
  5. Maverick74


    The reason for the accredited investors does not have to do with the risk of the strategies of the managers but rather the risk of the manager itself. In other words, investors in hedge funds do not get the same protections that retail investors get. Because of this, the gov't wants to make sure if your manager runs off to Brazil with your money, it's not going to ruin you. How many stories do you hear about rogue mutual fund managers? Almost never. They are highly regulated. If you ever get very wealthy one day you will understand. It's a lot easier to spend your whole live in poverty then to have been wealthy once and lost it all. The latter usually results in suicide, the former it's just called the daily grind.
    #25     Nov 25, 2017
    sle likes this.
  6. Robert Morse

    Robert Morse Sponsor

    In my experience, I have never had a wealth investor, fund of fund or family office ever use the S&P as the bench market in their evaluation. In fact, they typically want returns that are not correlated to the S&P, or market neutral or based on a proprietary data set without market risk. The bigger they are, the more they care about risk than reward.
    #26     Nov 25, 2017
  7. toc


    That is only one of the several risk related factors of the HFs. If running off to Brazil is one of the major factors then SEC will quickly put in the rule whereby HFs only have trading access to the funds but no ability to withdraw funds and disappear to Brazil or other countries.

    Another risk related factor with HFs is regulations/audit etc. regarding paperwork etc. Many cases out there like Maddoff where HF manager was sending fake statements to investors posting returns that never were gained by the HF.

    Infact SEC should put in such extra "audit and enforcement" tools on HFs and charge then out of their 2/20 fees structures for costs incurred by SEC to safeguard against the slick play.

    In addition to a "hurdle benchmark of returns" to be eligible for incentive pays, SEC should also mandate that if a Fund has gotten too big in size then each $1B under managements needs atleast a minimum number of analytical support to help in both efficient research and operations.

    There are funds out there with several billions under management and having "only" half dozen people doing research and analysis. End result is way sub par returns which are still subjected to 20% or more of incentive fees.
    Last edited: Nov 25, 2017
    #27     Nov 25, 2017
  8. ironchef


    You have statistics on ET small mom and pop retail members that tell you we are not rich?
    #28     Nov 25, 2017
  9. Hello,

    They have trading systems you can invest in that have beaten the S&P500 by large numbers year after year. You don't have to invest in hedge funds with the hope of bearing the SP by a few percentages..
    #29     Nov 26, 2017
  10. Maverick74


    Yes, I do. I have met a large enough sample of people from ET in person that assuming the distribution is normal (and it is), then there is enough evidence to extrapolate that the sample mean approximates the population mean. Also, please review the post again where I stated "most little guys on ET are not rich". They're not.
    #30     Nov 26, 2017
    ironchef likes this.