No "that" is that part that is NOT news. The timing part is pushing the story out right after a correction as to suggest correlation of which there is not. In fact, the irony of the story and the timing is that the one "meaningful" aspect that they '"could" have reported on is that hedge funds are over exposed to emerging markets right now and this previous correction has in part been driven by that story. THAT would have been more newsworthy. Not repeating something that has been written about endlessly for years.
Are Hedge Funds Still for Suckers?
- Thread starter Banjo
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No "that" is that part that is NOT news. The timing part is pushing the story out right after a correction as to suggest correlation of which there is not. In fact, the irony of the story and the timing is that the one "meaningful" aspect that they '"could" have reported on is that hedge funds are over exposed to emerging markets right now and this previous correction has in part been driven by that story. THAT would have been more newsworthy. Not repeating something that has been written about endlessly for years.
I don't follow aggregate hedge fund performance or the nature of their collective exposure. And I don't have an opinion one way or the other, aside from the view that most participants in the financial world are not very good at what they do, which is what separates the relatively few top performers from the rest. So perhaps it is not surprising that the aggregate performance numbers are not very inspiring. And the article's focus was exactly that: inferior aggregate hedge fund performance over time relative to a far more simple portfolio.
Perhaps you are reading more into the article than is actually there. The only "suggested correlation," if that, is one of inferior collective performance.
Well, if that is the argument they are trying to make, they failed. The purpose of hedge funds is NOT to outperform the market. It's to out perform the market on a "risk adjusted" basis. So while returns of many funds have lagged buy and hold indexers, on a risk adjusted basis, most hedge funds (not all) have provided lower volatility to their investors. And I should qualify this statement by referring to the large more established funds out there, not the small "here today, gone tomorrow" funds of which there are many. But certainly the funds cited in the above article have delivered above average "risk adjusted" returns, but perhaps not better "absolute returns".
Kidding aside, I'm well aware of the risk-adjusted return argument. Do you have aggregate numbers to support your conclusion that the risk-adjusted return of aggregate hedge fund performance is superior to that of a more simple portfolio? Because the article refers to the hedge fund field in general, and not only its top performers.
https://www.managedfunds.org/wp-content/uploads/2013/07/MFA_HedgeFundPerformance.pdf
Little more data centric here.
Little more data centric here.
Okay, assuming the validity of the numbers, point taken.
And what makes you think a typical Hedge Fund would benchmark vs. a 60/40 bond/equity allocation?
Guess what: Hedge Funds didn't beat gold from 2000-2015. But why would they? Apples and oranges.
I'm not suggesting they're the same. But they should be compared to something, otherwise how do you gauge performance between and among alternatives? A 60/40 equity/bond allocation may or may not be a suitable benchmark, but it is a typical holding and far more suitable and benign than your comparative reference to a single commodity holding. (No need to be absurd just to make a point.) I was only referring to relative performance over time, which was the point of the article. As for risk-adjusted return, I already mentioned that I was not aware of the comparative performance numbers, so I had no opinion one way or another. Was that not clear?
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Hedge funds should be compared to similar funds/indices that offer the same strategy. Event driven funds should be compared to other event driven funds, credit funds should be compared to other credit funds or a specific credit index that mirrors the strategy, long/short funds vs. other long/short funds, etc.... Comparing a fund's performance to a 60/40 portfolio doesn't make sense b/c that is assuming the investor would be willing to put their entire asset base into that specific hedge fund. Now if you put your money into an absolute return fund where the manager claims he can beat the market, then it would be appropriate to benchmark his performance against an equity index, but absolute return strategies are only a small part of the hedge fund industry.