Questions: managing other people's money?

Originally posted by darkhorse




as a general rule of thumb, wealthy investors are more interested in capital preservation than capital appreciation. the more you have, the more you want to keep it.

if fund A is up 50% and fund B is up 25%, that doesn't tell you a whole lot. it may be that A simply takes on more leverage (and thus more risk).

i know someone at a $900 million outfit with an annual performance target of 15%. the flipside of this, of course, is that their drawdowns are practically nonexistent.
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Yes - P2 does not understand or want to understand this. You make more, you [can] lose more, and the only [simple] way to measure this is the drawdown. P2 can prbably make 100-300% a year, but at a substantially higher than non-zero probabilty of a blow out.

15%, I can do that without even trying. On 900 Mil tho, hmmmm, I doubt it...

nitro
 
Originally posted by nitro

Yes - P2 does not understand or want to understand this. You make more, you [can] lose more, and the only [simple] way to measure this is the drawdown. P2 can prbably make 100-300% a year, but at a substantially higher than non-zero probabilty of a blow out.

15%, I can do that without even trying. On 900 Mil tho, hmmmm, I doubt it...

nitro
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Ohh, trust me, I hear ya. I agree, 15%, I can do that with my eyes closed.

I also hear ya on risks, but people who invest with me want risk. They'll take the occasional 15-20% hit in a month, if they'll get near 100% returns. Aaron, I assume it's the same for your investors. Besides, many of my investors are down way more than that this year in their "conservative" funds. Maybe 2 years ago, talk of a bad month like 25% would scare the pants off people. Now, many of them are down that much in "safe" funds. They never even considered that they were taking risks like that. As many have pointed out, if they're going to take risks like that, they'd better get the upside reward of 100% a year returns, or damn close to it, rather than the 30% that they have gotten in their best years at their other funds.

Besides, I've never had a drawdown of over 25% from peak to trough, even though I LOVE the margin, and I actively look for risk. Many of my relative's are down 75% or so on their funds now since 1/1/00.
 
Ohh, and last week was just about my worst one in months. I had a 20% drawdown from late Tuesday to Thursday's close.

OMG (or Ohh My God, this f*ckin' POS stock won't stop dropping all the way from 60 without a bounce, what type of Bullsh*t is this for a GNP)

or Ohh My God, THC dropped 30% on one print (with a halt inbetween)

Not my type of week. Somehow, I went from being up 10% this week, to being down 10% for the week. Rough drawdown starting late Tuesday, but all in all, it wasn't that bad of a week anyway.
 
Originally posted by praetorian2
IWhy come only 3 are up over 40% on an annualized basis. Just a standard bell curve should give at least a few more who are up 40%. BTW: why advertise if you're up like 20% or so.
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well, no.. even if hedge funds returns were normally distributed (and i don't know if they are or not), a standard bell curve does not have to contain ANY funds that are up >40%..
 
Originally posted by praetorian2


OMG (or Ohh My God, this f*ckin' POS stock won't stop dropping all the way from 60 without a bounce, what type of Bullsh*t is that for GNP
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all the best to u P2. out of everyone's styles i've heard of (not that many really), yours is definitely the most unique.. and from where i stand, probably the most unnerving, as i'd always be wondering whether the "G" in GNP is really all that "G" :)

as far as 25% drawdowns go, i agree with you that when the vast majority sign up for that shiny new mutual fund that is gonna bring all their cute little retirement dreams into fruition they didn't consider that 25% drawdowns are not only possible, but actually quite likely.

also, the thing about % returns is that although percentages are great for comparative purposes, they can sometimes be misleading too.
a 25% drawdown on anything less than $100k is pretty negligible, since even if the fund can't make it back, it's really only a years employment away... and for the kind of returns that risk will give you, most would consider it worth it.
25% drawdown on 10million? well, i'm not so sure i'd be prepared to go there...

and i've gotta agree with darkhorse on the 15% with next to no risk being far far far and away preferable to even 50% with risk of 20% drawdown.

just one more thing, returns of 50%+ per annum on accounts of more than say $50MM-100MM, sustained for more than 5 years... no way. is there ANYONE that's actually done this? i haven't heard of it..
 
My favorite fund on that list is Crabel Capital Management, run by Toby Crabel who has been mentioned on other threads because of his book.

He started in 1992 with 300K. He returns less than 10% a year. He now has $1B under management. Look at the equity curve though. Totally smooth. Top drawdown is 4%. And, whats more, his investors from when he started are now ahead of the S&P.

I find it funny that people sweat 25% drawdowns so they can return 100% on a few M. Here's a guy who kicks back and makes $20M/year on just the management fee then another $20M on the incentive fee. And it seems pretty effortless for him. But who knows.
 
Originally posted by Vishnu

He started in 1992 with 300K. He returns less than 10% a year. He now has $1B under management. Look at the equity curve though. Totally smooth. Top drawdown is 4%. And, whats more, his investors from when he started are now ahead of the S&P.
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LESS than 10%? manages a cool Bil? man, where do i sign up???

obviously he didn't build up the billion with his original 300k. the capital contributions along the way would probably represent the vast majority of that, as even had he gotten a $400MM contibution at the start of year 2 he'd be under a billion. (and that's using a 10% return).

so, my question is, why are people so ready and willing to throw money at this guy if he can't even return a paltry 10%??? he took a 4% hit along the way too (>40% of his yearly return)... or is that acceptable when it comes to the "next to no risk" strategies darkorse mentioned earlier?

and the other thing.. what's the obsession with outperforming the freakin S&Ps?? yeah it's industry accepted benchmark, and it reads well in mutual fund promotional literature, .. but anyone with 7figures to throw at you would surely understand that it means squat.. (wouldn't they??)
afterall, let's be serious now, how many people do you know that really do buy and hold for at least 10 years?? more than half my family (extended) is living upper middle (from meager beginnings two generations ago) and not one of them has bought and held for that long, let alone longer..

and, fwiw, the majority of the world's population has outperformed the S&P the last few years... :p
 
hey, all your points are great. But he's still managed to raise $1B from hard-core institutions. So, whats the easiest way to make money?
 
It's all a matter of risk/reward.

Most of the larger funds won't take under a million as a minimum investment. Thus those investing are already on the wealthy side and need to have a balance between risk/reward. With a net worth of 10 million, i'd be pleased with a 10% return per annum.
 
vishnu also has a good point.
Would you invest in GE or GM if you knew their pension funds were in high risk/reward investments? In addition, if you were an employee at one of these firms and your pension is your nest egg, would you want the risk of a possible large drawdown.
 
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