Hedge funds have done a terrible job at picking stocks this year

D

dealmaker

Hedge funds have done a terrible job at picking stocks this year

  • found the industry netteda $5.2 billion performance loss through the first six months of the year.

    That has led to sometough consequences, includingredemptionsandcalls fortheindustry's demise.

    If you want one chart that sums up the reasons for the decline, Driehaus Capital Management has you covered.

    In a tweet Sunday, Driehaus showed the performance ofGoldman Sachs Hedge Fund VIP long indexversusGoldman's Hedge Fund VIP short index. Essentially, the long index tracks the companies that hedge funds are most heavily invested in to go up, and the short index tracks the companies hedge funds are betting against.

    View image on Twitter
    CpRRX-kWgAAs4x_.jpg:large

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    Driehaus@DriehausCapital
    ICYMI: GS's HF VIP Long basket trails its VIP short basket by ~10% YTD now. Long pharma, short staples…oy vey. KCN
    The performance so far is not pretty. The long index is basically flat for the year, while the short index is up roughly 10%, according to the chart. By comparison, the S&P 500 has returned 8.19% year-to-date. According to Eurekahedge, long/short equity hedge funds (those that focus on stocks) weredown 0.96% in the first half of 2016.

    To be fair, this is aggregate data, and some managers have probably outperformed over the time frame. Additionally, Driehaus is a manager of liquid alternatives, which are seen as direct alternatives to traditional hedge funds, so it's not coming from an impartial observer.

    Numbers are numbers, however, and it looks like so far the companies hedge funds thought were winners are losing, and the firms they thought were losers are winning.

    Ouch.

from Business Insider UK
 
Difference between hedge fund managers and retail traders is that they gamble with other people's money and win or lose they walk away with millions. Whereas the retail trader makes pennies one day, brags about it on anonymous internet forums, and lose it all the next day.
 
It's not surprising. Hedge funds will often cite a value proposition to investors such as "synthetic beta" and "a specific thesis" on why they can justify commanding 20% of profits plus the 2% of AUM. All they're doing is taking concentrated bets and expecting that some of them will pay off. However, when the market is in a bull run, you don't need to give away 20% of your profits to someone who claims they can pick stock winners, you just need to buy S&P through a mutual fund or ETF.

According to a recent article in WSJ, New Jersey is pulling back from investing in hedge funds. The following quote is classic:

"New Jersey decided to eliminate managers who “say we are better stock pickers and pay extra fees to do that,” Mr. Byrne said. “You haven’t earned your fees and you haven’t been smarter and we aren’t going to pay for that asset class anymore.”"

http://www.wsj.com/articles/new-jersey-backs-away-from-hedge-funds-1470264516
 
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ScalperJoe said:
It's not surprising. Hedge funds will often cite a value proposition to investors such as "synthetic beta" and "a specific thesis" on why they can justify commanding 20% of profits plus the 2% of AUM. All they're doing is taking concentrated bets and expecting that some of them will pay off. However, when the market is in a bull run, you don't need to give away 20% of your profits to someone who claims they can pick stock winners, you just need to buy S&P through a mutual fund or ETF.

According to a recent article in WSJ, New Jersey is pulling back from investing in hedge funds. The following quote is classic:

"New Jersey decided to eliminate managers who “say we are better stock pickers and pay extra fees to do that,” Mr. Byrne said. “You haven’t earned your fees and you haven’t been smarter and we aren’t going to pay for that asset class anymore.”"

http://www.wsj.com/articles/new-jersey-backs-away-from-hedge-funds-1470264516
More...

Many family offices stopped paying 2/20 since the credit crisis eg Parly ( one of the oldest & largest family offices in the world) and in the below video its discussed that only handful of the top, large fund managers are delivering Alpha and you might be better off going passive index fund if you can't invest with those managers.

https://www.elitetrader.com/et/threads/real-conversations-how-the-smart-est-money-invests.301776/
 
zdreg said:
alpha , beta nonsense.
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Too true. If they were better traders/investors they'd worry more about picking stocks that actually go up or down rather than about alpha/beta etc.

Alpha/beta are a similar catchphrase to 'risk-on/off'. Whenever I hear that phrase I'm always reminded of the blind leading the blind.
 
Question, All seem unhappy when Hedge funds don't do as well as S&P500 funds, but what does Hedge funds do when S&P500 have losing years?

Am often asked how to pick Mutual funds as they have limits to select for 401k at their work, I ask their age as if in 20's and early 30s invest in growth stock funds, but if you at age above 35 years old I tell them to find which Mutual Funds that lose the least in down years and yet to make a good percentage during the good years, might not be as good as S&P500 Index Funds but if they do better in down years than Index funds, they are doing ok.

Investing often has to do with personality ability to sleep ay night, as you get older, less risk is what I need and what I want. Better to trade less shares and keep risk down to sleeping levels.
 
Handle123 said:
Question, All seem unhappy when Hedge funds don't do as well as S&P500 funds, but what does Hedge funds do when S&P500 have losing years?
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"...but what does Hedge funds do when S&P500 have losing years?"

Apparently, 2008 was not very good!

http://www.marketfolly.com/2009/01/2008-hedge-fund-performance-numbers.html

According to Credit Suisse/Tremont Hedge Fund Index:

Convertible Arbitrage -31.79%
Dedicated Short Bias 13.87%
Emerging Markets -30.38%
Equity Market Neutral -39.44%
Event Driven -16.91%
Fixed Income Arbitrage -27.72%
Global Macro -4.69%
Long/Short Equity -19.92%
Managed Futures 18.23%
Multi-Strategy -23.74%

Only two asset classes (Dedicated Short Bias and Managed Futures) were positive. Sure, others may have lost less than the S&P, however you'd have to compare the performance on a longer time period (say, over a decade or so) and see which is better: hedge fund performance vs. S&P. And it also depends on which hedge fund manager, and which hedge fund strategy over a broader period.

The bottom line is the S&P has recovered from every correction, regardless of the percentage of draw. The same cannot be said for all hedge funds.
 
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dealmaker said:
Many family offices stopped paying 2/20 since the credit crisis eg Parly ( one of the oldest & largest family offices in the world) and in the below video its discussed that only handful of the top, large fund managers are delivering Alpha and you might be better off going passive index fund if you can't invest with those managers.

https://www.elitetrader.com/et/threads/real-conversations-how-the-smart-est-money-invests.301776/
More...

Interesting video. AQR has $150 billion in AUM, so they've done something right. The interview mentions that managed futures are a part of the portfolio, and jokingly claimed that "moving monkeys" (ma's) are used to depict trend. One would think a guy putting up $1 million or so in AQR would expect he's investing in some type of sophisticated algo strategy, not some basic MA crossover using price charts, lol!
 
Barclays: Total Number of Hedge Funds to Shrink, First Decline Since 2009
Aug 9 2016 | 6:14pm ET

By Svea Herbst-Bayliss (Reuters) - Hedge funds, known for their big bets, fees and pay packages, are on track to shrink this year as disappointing returns have forced an increasing number to shut down, Barclays said in a report released on Monday.

The industry is expected to contract for the first time since the 2008 financial crisis as fewer funds are likely to be launched and more managers call it quits, the report said.

Barclays estimated 2016 would end with 340 fewer hedge funds worldwide, down about 4 percent from last year. The last time the number shrank was in 2009, by 4 percent, following an 11 percent contraction at the height of the financial crisis.

Research firm Hedge Fund Research (HFR), in a monthly report released on Friday, counted a total of 10,007 hedge funds worldwide in July.

"Based on recent HF (hedge fund) performance and the increased challenges to launching an HF (hedge fund), we estimate that there would be a net decrease in the number of funds by YE (year end) 2016," the Barclays report said.

Barclays' calculations were based on a survey this year of 340 investors who had allocated $900 billion to hedge funds, making up roughly 30 percent of the industry.

From 2010 to 2015, the number of funds grew 2 to 3 percent each year. But Barclays found that 61 percent of those surveyed felt hedge funds did not meet their expectations.

Investors overwhelmingly blamed the industry's large size for current tepid returns, with 74 percent of those surveyed saying too many managers were chasing a limited number of ideas.

Losses have led to a drop in assets at some funds, leaving managers few options but to shut down.

Laurion Capital Management, launched in 2012, has closed its $1.1 billion Laurion Capital Global Markets fund, sources said in July.

Fortress Investment Group said last month that it planned to shut its Centaurus Global hedge funds.

But some big names are still venturing into the field. Two former Soros Fund Management executives said earlier this year they would launch a firm called Castle Hook. Taconic Capital Advisors co-founder Ken Brody said in August he would come out of retirement to launch Sutton Square Partners.


from FINALTERNATIVES
 
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