Posts filed under “Hedge Funds”

1.6% & 18% is the New 2&20

Intriguing if slightly misguided article in the WSJ ( Hedge Funds Cut Back on Fees) about high fees that hedge funds charge, and how they have become somewhat lower. (My only beef with the article is that hedge fund under-performance has been going on for far longer than since the crisis).

As I noted in Romancing Alpha, Forsaking Beta, fees and performance are the two big issues facing hedge fund investors. It is nearly impossible to overcome the pernicious long term effects of 2&20%, assuming that funds have been out performing. But therein lay the rub: They haven’t been. So charging an enormous fee for under-performance seems to be rankling the big institutions who have been bamboozled by the consultants who push alternative investments.

Beyond fees, there is a real issue with hedge funds as investment vehicles. (And no, they are not an asset class, despite the claims of those over paid and conflicted consultants).

What are the problems that the hedge funds industry faces?

1. Most fund managers create Alpha only when they are small and focused — typically, under $250M.

2. When these funds scale up above $1 billion, there is a tendency to lose their advantages. Many become closet indexers (which at 2&20% is an awful deal)

3. The huge increase in the number of hedge funds — there are now over 9,000 — has dramatically diluted the manager talent pool.

4. The Mathematics of compounding fees is inescapable. The drag from 2&20 does not allow the advantages of market gains to accrue fast enough. That math is how the 2008 crash wiped out the prior 25 years of gains for Hedge fund investors (in total).

5. The odds are very long indeed that you will be able to select the next outperforming emerging hedge fund manager. Oh, and good luck getting the top 1% of funds — the best 80-100 performing funds — to take your money.

None of these issues cannot be cleared up with the disappearance of 7,000 hedge funds or so. That is not likely to happen so long as Institutions, family offices, and HNW investors keep plowing cash into them.



Hedge Funds Cut Back on Fees
WSJ, September 9, 2013

Category: Hedge Funds, Investing

Proof the Bond Bull is Over: PIMCO Selling Hedge Funds

If you have been seeking unequivocal proof that the 30 year bull market for bonds is over, look no further than this WSJ headline: Bond-King Pimco Plans to Push ‘Alternative Funds’. Think about what this means: From 1980 to 2013, PIMCO enjoyed three decades of rising bond prices — read falling interest rates — and…Read More

Category: Fixed Income/Interest Rates, Hedge Funds, Investing

“I Am Looking to Outperform the Markets by 4-5% a Year”

Lately, the day job has been inspiring many of our Philosophy Phriday posts. (This coming Sunday’s WaPo column was also inspired by what we see int he office). Today’s post is another such example. Perhaps its because we run a somewhat different business model than is typical in the finance industry in the US. Our…Read More

Category: Apprenticed Investor, Hedge Funds, Investing, Philosophy, Psychology, Really, really bad calls

Vancouver: Romancing Alpha, Forsaking Beta

This is the presentation I gave in Vancouver — its an expanded version of the Institute for Responsible Investing presentation I gave at the Kennedy School./  

Category: Hedge Funds, Investing, Psychology

Interview with Jim Rogers

I am off to this conference this weekend — one of the other keynoter speakers will be Jim Rogers. Last month, Joe Dedona, head trader at our Institutional Desk, sat down with Jim for this interview: ~~~ Fusion MarketSite was fortunate to interview Jim Rogers, co-founder of the Quantum Fund with George Soros. Legendary investor, author and world traveler,…Read More

Category: Hedge Funds, Investing, Think Tank

Hedge Fund Dysfunction Syndrome

  Ron Burgundy says: Stay classy, Businessweek!       Source: Why Hedge Funds’ Glory Days May Be Gone for Good By Sheelah Kolhatkar BusinessWeek, July 11, 2013

Category: Financial Press, Hedge Funds

How Gold Lost Its Luster, How the All-Weather Fund Got Wet, and Other Just-So Stories John Mauldin July 3, 2013     We have not revisited the topic of gold in Outside the Box recently, mostly due to the fact that nearly everything I read on the subject is derivative of what I have been…Read More

Category: Gold & Precious Metals, Hedge Funds, Think Tank

The Other Zulauf . . .

In 2010, I did an extensive interview with Felix Zulauf. He and his son, Roman, are launching a new hedge fund. Joe Dedona, head trader at our Institutional Desk, sat down with Roman for this interview: ~~~ Roman Zulauf is Co-CIO of Vicenda Asset Management, an alternative asset management company based in Zug, Switzerland.  We…Read More

Category: Hedge Funds, Investing, Markets, Think Tank

Possible versus Probable

Its Friday, and has become my wont, this is the day of the week I like to kick back, wax philosophical about various thoughts kicking about me noggin. One of the things that I have been noticing of late is the way so many people seem to confuse facts with forecasts. Twitter is rife with…Read More

Category: Hedge Funds, Investing, Mathematics, Philosophy, Venture Capital

Bad Chart: Hedge Funds’ Long Term Gains

Click to enlarge Source: Moneybeat   I have been in the midst of a big research project that has led to me looking askance at the claims and long term returns of hedge funds. It began with the research I did for Romancing Alpha, Forsaking Beta, and has led to other interesting places. But as…Read More

Category: Data Analysis, Hedge Funds, Investing