Average Hedge Fund Did Worse Last Year Than The S&P

Anyone can run a hedge fund. Just take all of your client's money, stick it into the SPY and IWM and then take a 1 year vacation in Europe. If it goes up 10% and you have 1 billion under management, you make 20 million in management fees and 20 million in incentive fees for a total of 40 million. Even if it goes down a little, you still make close to 20 million just in management fees. You can even write covered calls to rake in some extra premium.

Now the big question is who is going to give me $1 billion to play around with?
 
Quote from makloda:

Jealousy gets you nowhere. If you think you can do better than the average fund, then get your track record (which I bet is outperforming the SP500 year in year out over 10 years with no down years) audited and get busy raising capital. HEY, ANY MONKEY CAN DO IT AND GET FILTHY RICH RIPPING OFF IDIOT INVESTORS WITH 2/20 SO WHY CAN'T YOU??????????????
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Hey makloda, take it easy. You might get a heart-attack. Don´t want to be responsible for your unease. Here´s a an advice from my doc :
take a deep breath and begin counting 22, 23, 24 and so on...relax...:p
 
Quote from ASusilovic:

Lower volatility "bond like" returns ? Oh yeah, now I´m convinced why these investors are paying 2/25 fees for...
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Hows 0 beta and 7-9% after fee sound?
 
Quote from makloda:

I didn't know it's big news the SP500 does better than HFs on average? After all it has been like this for like 20 years. Most people don't invest in Hedge Funds to outperform indexes but instead to achieve lower risk, lower volatility "bond like" returns:

hflr4.png
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wow....thanks for the comment and the picture.....yes hedge funds may only match or slight lag the S&P.......but the lower volitility is remarkable and apparently worth it for many institutional investors.......remember when the S&P went down over 50% in the last bear market......hedge fund performance barely budged.....that's remarkable.
 
Three points - First, manager selection is everything in the world of hedge funds. The dispersion between the best and the worst can be quite dramatic - much more so than a traditional long-only manager.

Second, over the last fiver years through April 30, the HFR Fund of Funds index returned 8.1% with a standard deviation of +/- 3.9%. The S&P returned 8.5% with a standard of +/- 13.1%. you can see that the Sharpe Ratio is much,much higher for hedge funds than for traditional long only managers. That's why people pay 2 and 20 for their services.

Final point, which was stated earlier, hedge funds are a risk reducer, not a return enhancer. If you feel the markets are poised to go higher, invest in private equity, not hedge funds.
 
Quote from Div_Arb:

Three points - First, manager selection is everything in the world of hedge funds. The dispersion between the best and the worst can be quite dramatic - much more so than a traditional long-only manager.

Second, over the last fiver years through April 30, the HFR Fund of Funds index returned 8.1% with a standard deviation of +/- 3.9%. The S&P returned 8.5% with a standard of +/- 13.1%. you can see that the Sharpe Ratio is much,much higher for hedge funds than for traditional long only managers. That's why people pay 2 and 20 for their services.

Final point, which was stated earlier, hedge funds are a risk reducer, not a return enhancer. If you feel the markets are poised to go higher, invest in private equity, not hedge funds.
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What about the hedge funds that blow up? I don't see that as a risk reducer.
 
What about Enrons and Worldcoms blowing up? What about Russian bonds blowing up in 1998?

Defaults happen everywhere that's why one should diversify HF investments.
 
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