Has hedge funds time passed?

Quote from rufus_4000:

No, it is just the simple matter of diversifying. All strategies have inherit capacity limitations, so with more and more capital, the HFs are just looking at more investment strategies, including the traditionally less liquid markets. It is hard to say what Goldman does, since they are in so many different businesses.

In a similar vein, Susquehanna is hiring investment bankers and research analysts like crazy in a bid to get into new businesses, it is not that SIG is finding market making not profitable (not at all), it is just that they have enough excess capital that they want to grow.
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Totally agree...only large strategy I've heard they've completely closed is converts. Still huge into options market making, etc, etc.

And new funds are always being started by alumni from these flagships, esp Citadel as their deferred comp from the boom years has come rolling in.
 
This is a topic I've been considering for a year.

There's too much money chasing too little alpha (i.e. edge).

What I've been asking myself for a year - what happens when the average hedge fund yields only 6%, and the 5 year T-note also yields 6%, with much less fluctuation in returns, and much greater safety of principle?

Get your money out of hedge funds first. Before the next major lockup date expires.
 
Treasury "I" Bond 30k min. 6.73% might be a 5 year. From Treasury Direct :D

Wonder what % of funds that bond outperforms 20%? 50%? 80%? :D

Funds diversifying? Into what, real estate. Got that. Plenty around too. :D

Foreign market investing? Got all that with IB. And duh - we have gazillions of ETFs. :D

Only dopes going into hedge funds I say. Or foreign criminals. Or other non performing funds or institutions trying to diversify the nonperformance. :D Housewife opening a CD down at the bank for the kid can probably do better. :D

Few big failures or revelations of serious criminal activity or misconduct and that industry is yesterday's news, or at least regulated. Remember "The Firm"?

Ha ha. Fire away boys!
 
Being that the most successfull firms combined probably only control about $100bb in assets, I don't think a major liquidation among minor players would be good at all for the overall market performance in 2006. All the good news about economic indicators would be mute if there was a mass cash-out.

With a lot of the funds trying to extend lockups to 2+ years in the next couple of months, we could see some HF liquidations in January.
 
Quote from vhehn:

why would anybody pay high fees for this kind of performance?
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Because if the market takes a shit a la the internet bubble burst, hedge funds won't drop like rocks. Ya, sure, you can get the same or better performance with an index fund in the short term, but over the long term a hedge fund gives you a nice, steady equity curve instead of a volatile chart of the S&P.
 
Quote from Corso482:

Because if the market takes a shit a la the internet bubble burst, hedge funds won't drop like rocks. Ya, sure, you can get the same or better performance with an index fund in the short term, but over the long term a hedge fund gives you a nice, steady equity curve instead of a volatile chart of the S&P.
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IMO, that's a pretty large assumption on your part. In aggregate, you might be right, but there is no assurance that the particular fund one might have selected out of the 8000 or so out there, will stay affloat. BTW, I'm not endorsing mutual funds as any better alternative, I just believe that is near impossible to categorize the entire alternative fund industry in such black and white terms.
 
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