Hedge funds keep two-thirds of profits

[Same Lazy Element]

Cheerleading for the hedge fund industry is not really a "discussion".

Well, from your perspective, it's should be an educational experience (e.g. you did not realize that most managers are invested heavily in their own funds).

As for cheerleading, I am actually very negative on the future of hedge fund industry. There is no reason why 2.5 trillion dollars are deployed in finding market inefficiencies, there aren't enough opportunities to support that amount of AUM. My expectation is that many hedge funds will re-brand themselves as asset managers and change the fee structure to be more palatable (some already did in the past few years, like AQR). Funds that have true alpha will become private vehicles, which is happening as we speak (bunch of hedge funds became family offices and many hedge fund PMs have elected to join prop firms instead). Funds that provide specific correlation/exposure profiles will become service providers (again, you see that in various forms).

In any case and as a group, money managers cannot even trail the S&P 500:
https://www.cnbc.com/2019/03/15/act...th-year-in-a-row-in-triumph-for-indexing.html

Well, that's not surprising - the market has been on a 12-year tear, thanks to the Fed. If someone was holding stock indices from mid 2000 to mid 2012, the results would be very different.

 

[Tradex]

most managers are invested heavily in their own funds

That's what you keep claiming.

Well, that's not surprising - the market has been on a 12-year tear, thanks to the Fed

Right....

Money managers cannot trail the S&P 500 because the market, the Fed or Santa Claus is doing this or that.

We just saw that hedge funds keep 2 thirds of the loot, that 50% of the mutual funds in the US do not invest a single penny in their own funds, that money managers cannot even trail the S&P 500 (let alone beat it), that a simple passive index fund can easily outperform these "experts" in the long run and yet you are still here defending these guys, whole sole purpose is to collect fees from their customers while still delivering inferior results.

You never quit, do you?

Anyway.

 

[Same Lazy Element]

You never quit, do you?

You really wanna do this here? Hmm, sure, lemme throw some stuff at you - this is just from a couple threads that I saw, I am sure there are more gems that I've missed.

If you actually took the time to read what I am saying here, you'd see that I am not sympathetic to the hedge funds overall despite working in the industry. More importantly, I rarely say anything factually incorrect and if I do, I usually accept that I am wrong when corrected. That's because truth happens to be more important in this business than ego.

You, on the other hand...

(a) Suggest to people that ones risk is defined by a stop-loss as opposed to the notional exposure. I.e. you do no understand that things do gap, even your favorite EUR/CHF (see point c) position has moved buckets when SNB move the EUR peg in 2015. It's funny and scary at the same time.

Leverage has nothing to do with risk. You can trade with 1,000 to 1 leverage and still risk only 2% on each trade (or any percentage you like).
YOU control the risk, not the leverage.

(b) Think that Black Scholes Merton is somehow designed to price options advantageous to the seller. This alone deserves a whole separate thread cause it's so hilarious.

NO!

It means that the BSM has been designed to produce options that are priced higher than they ought to be, just like a roulette at the casino has been designed to pay you less than the true mathematical odds.

Enough said.

(c) Do not understand the concept of triangular arb and claim to be an FX trader.

Alright here we go, short EUR/CAD at 1.5120, 38 pip stop.

Short CAD/CHF at 0.7155, 22 pip stop.

Unless the currencies I am trading are highly correlated (positively or negatively), I trade each signal separately.

I have no trading signal on EUR/CHF so no trade.

 

[Tradex]

Think that Black Scholes Merton is somehow designed to price options advantageous to the seller.

Yes, these formulas have been designed to give the option sellers a slight edge (nothing against that, it's not my problem).
You can deny it all you want it won't change anything.

do no understand that things do gap

Yes, but half the time they will gap in your favor too. In the long run it will even things out.
And if you are heavily invested and do no want nasty surprises you can always hedge with options (instead of using hard stops).

Do not understand the concept of triangular arb and claim to be an FX trader.

Seriously, that's the best you can do?

A trading system issues a signal on EUR/CAD, then a few hours later a signal on CAD/CHF.
Now, only fools and amateurs would close these 2 positions immediately and go short (or long) EUR/CHF.

Why?

Because there is NO trading signal on EUR/CHF.

I already explained that months ago but if you still do not understand this simple concept then your knowledge of trading systems must be close to zero.

I am not sympathetic to the hedge funds overall despite working in the industry

No comments on this one.

 

[Tradex]

Traders watching this thread can also read the hilarious and eye-opening book :
How to make a million dollars an hour : why hedge funds get away with siphoning off America's wealth by Les Leopold.

From the cover:

"How hedge funds make money by taking it from the rest of us—and how you can join them!

Top hedge fund managers make more than Oprah, Rupert Murdoch, and A-Rod combined—but they aren't running news and entertainment empires or playing baseball for the New York Yankees. Aren't you curious about how these hedge fund dudes make so much doing who knows what? You may even wonder if you can get there, too. After all, this is America!"

 

[Same Lazy Element]

Yes, these formulas have been designed to give the option sellers a slight edge (nothing against that, it's not my problem).
You can deny it all you want it won't change anything.

Care to prove it? You know, start with the concept of risk neutral pricing and explain why it favors the seller?

Yes, but half the time they will gap in your favor too. In the long run it will even things out.

LOL, what? You said that you have a 100:1 leveraged position that has a 2% stop. Let's say you put that on in EURCHF, then SNB announces a change in peg like they did in 2015. The position gaps against you by 30% (that'd how much it moved on that day). You're now bankrupt and owe a ton of money to your broker. As per your explanation, you had 2% max loss.

Because there is NO trading signal on EUR/CHF.

I already explained that months ago but if you still do not understand this simple concept then your knowledge of trading systems must be close to zero.

So you have no signal on EUR/CHF, yet you end up with a position in that pair synthetically. Care to explain?

 

[Tradex]

Care to prove it?

Care to prove that hedge funds invest all their money in their own funds, like you claim...?

The position gaps against you by 30% (that'd how much it moved on that day). You're now bankrupt and owe a ton of money to your broker. As per your explanation, you had 2% max loss.

Nope.

For the simple reason that I don't mess with pegged currencies, they can create catastrophic losses instantly (or huge gains if you are on the right side of the market).

So you have no signal on EUR/CHF, yet you end up with a position in that pair synthetically. Care to explain?

Sure, give me a moment, I will show you some examples.

PS: by the way, don't take this personally, I have absolutely nothing against you (or any ET member), we are just exchanging ideas, nothing more.

 

[SunTrader]

Come on, hedging their bets can easily be obtained via options or other leveraged instruments.

And the "documents" you listed do not prove a thing.
Quick example, and I quote: "While such investments [in their own hedge funds] are not legally required, they are a tradition and an expectation among institutional investors."

Oh really? Hmmm....

And think about it for a second, if 50% of the mutual fund owners do not invest a single penny in their own funds, what does this tell us about the rest of this "industry"...?

Beating a dead horse. Mutual funds are not hedge funds. Opposite ends of the same industry. You're a sharp guy, you should know this stuff.

 

[Kevin Schmit]

Yes, these [BSM] formulas have been designed to give the option sellers a slight edge ...
.

Why then does a binomial tree model (which essentially computes the discounted risk-neutral expectation) produce the exact same price as BSM with identical inputs. If BSM had a built in "seller's advantage," then you'd expect the BSM price to be higher. Note that the binomial model uses none of the BSM formula to come up with a price.

You, TheCoder, MarkBrown, and Beau Wolinsky need to start your own forum where you can swap these fictions to your hearts content.

 

[Tradex]

Mutual funds are not hedge funds.

Wait, say that again?

Aren't mutual funds supposed to make money for their customers?

Yes, you said?

Ok, so if they can indeed make money for them, how is that even possible that 50% of them (7,500 mutual funds just in the USA, to be exact) are NOT investing a single penny in their own funds?

And if half of these mutual funds are not investing all their money in their own funds, why should we suddenly believe that hedge funds are not doing the same exact thing (zero skin in the game and huge profits just from the fees they collect each year, regardless of their trading results)?

See the problem here?

Of course you do.