Has hedge funds time passed?

Free Thinker · Nov 17, 2005

why would anybody pay high fees for this kind of performance?

CogentHedge
Fund Performance for October 2005
With over 2800 alternative investments reporting results for the month of October 2005, the average hedge fund has declined -1.293% for the month. This dip in the string of advances for the past five months brings average performance for the full year 2005 to date down to +4.624%.
Only nine of the four dozen investment strategies tracked by the CogentHedge application posted gains for the month. The top five strategies for the month are as follows:

Investment Strategy October Gain YTD 2005 Std Dev # Funds
All Funds -1.293% 4.624% 4.207% 2852
All Multi-Manager Funds -1.531% 3.258% 3.613% 737
All Single Manager Funds -1.206% 5.386% 4.391% 2122
All Futures Funds -0.728% 0.686% 5.006% 351
Regulation D Strategies 1.009% 14.280% 0.759% 11
Fixed Income Arbitrage 0.779% 5.174% 0.894% 11
MBS Arbitrage 0.775% 8.404% 0.986% 19
Credit Spread Arbitrage 0.650% -3.325% 0.260% 3
Short Selling Strategies 0.597% 7.072% 2.531% 5

Although October was a difficult month, the relatively narrow band of returns would foreshadow a rebound for alternative investments. Returns for the month ranged from a high of 1.009% for Reg D funds (as above) to a low of -2.319% for Sector Specialist L/S strategies (assuming we ignore the outlyer of -4.759% for Emerging Markets Equity funds).

risktaker · Nov 17, 2005

Too many sharks and not enough food. They end up biting each other.

It just PROVES that it was NOT their talent that made profits in the past but the market environment!

nononsense · Nov 17, 2005

Quote from risktaker:

Too many sharks and not enough food. They end up biting each other.

It just PROVES that it was NOT their talent that made profits in the past but the market environment!

Hedge funds, is that the place where they employ them "quants"?

IV_Trader · Nov 17, 2005

and all those "spectacular" numbers are based on voluntary reporting , you just can imagine how would they look if you include the ones that already closed the doors

hoezx6r · Nov 17, 2005

Right, an entire asset class that's been around for 50 years will disappear because of a year of bad returns.

There will be a shakeout of the weak funds...the ones who jumped on the bandwagon and didn't genuinely create alpha.

So people like Soros and Ken Griffin didn't have talent?

Enfinity · Nov 17, 2005

Citadel is definately diversifying outside of trading strategies though...Castle Reinsurance. They are probably the most solid hedge out there right now. With the structure and systems that Griff is putting into place, they have a lot of room to grow their asset base.

gnome · Nov 17, 2005

Quote from risktaker:

"...It just PROVES that it was NOT their talent that made profits in the past but the market environment!

A new take on an old adage...? "Don't confuse brains with a bull market"

rufus_4000 · Nov 17, 2005

Quote from Enfinity:

Citadel is definately diversifying outside of trading strategies though...Castle Reinsurance. They are probably the most solid hedge out there right now. With the structure and systems that Griff is putting into place, they have a lot of room to grow their asset base.

With a lot of the funds doing private equity stuff (see Cerebus, DE Shaw, Ritchie, etc), not even to mention funds that specialize in activism (ESL, for instance), the line between a large hedge fund and an investment bank is blurring.

risktaker · Nov 17, 2005

It's as if they're admitting their traditional trading edge is gone and so they're becoming investors, no?

Quote from rufus_4000:

With a lot of the funds doing private equity stuff (see Cerebus, DE Shaw, Ritchie, etc), not even to mention funds that specialize in activism (ESL, for instance), the line between a large hedge fund and an investment bank is blurring.

rufus_4000 · Nov 17, 2005

Quote from risktaker:

It's as if they're admitting their traditional trading edge is gone and so they're becoming investors, no?

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.