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The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
Quote from ralph00:
Sure, a great many of the hedge funds offer little alpha, and simply generate returns through leverage. The guys who run and raise money for these things are little more than well-dressed, well-spoken salesmen, who went to the right schools, belong to the right clubs, and have a lot of fine art on their walls.
Let's not throw all of the funds into this bowl though. Is Einhorn levering up a simple carry trade to generate his returns? Klarman? Thiel? Paulson? Dalio? Jones? Hendry? The list could go on, but the point is that there will always be opportunities for a smart macro guy or a great stockpicker to generate alpha.
What you say is true but Gross is referring to the industry as a whole, the reason they show good returns(HFRI) overtime is likely due leverage and positive risk premiums. Anyone can do that with an IB account and a diversified long levered futures portfolio, and you dont pay 2/20 so your long-term returns will be higher
It seems that the GSCI is up 35% YTD, add a bit of leverage and one could have made 50%. However it only became clear that the US was avoiding a depression in April/May, so the returns one could get would have been lower. And thats one trade I failed to participate, specially given that I would be somewhat hedged given that I was still long tons of stock puts. Had I not made this mistake I could have made a huge return this year
But another entry should come down the pipe, when the stock market comes back to earth I bet commodities will come with it. I just hope I can finish my research before that
But another entry should come down the pipe, when the stock market comes back to earth I bet commodities will come with it. I just hope I can finish my research before that
If I structure a portfolio putting $10m long into a bunch of stocks, and $8m short into another bunch of stocks. Then my gross leverage is 1.8 but my net long exposure is 0.2.Quote from Daal:
Bill Gross on hedge funds
"Actually their wizardry in my opinion has little to do with buying or selling the right stocks at the right time and everything to do with leverage.
Leverage in a fund can indicate lower risk, because if employed right it can lower directional market exposure. It is quite embarrassing that such an obvious fact escapes Gross.
Quote from makloda:
Leverage in a fund can indicate lower risk, because if employed right it can lower directional market exposure. It is quite embarrassing that such an obvious fact escapes Gross.
I'm sure he would agree with this, but more often than not hedge funds are not doing these sorts of leverage bets. They cant as individual short selling is not an activity that can take a lot of liquidity, at least compared to the long side of all kinds of assets or betting in futures
Quote from makloda:
If I structure a portfolio putting $10m long into a bunch of stocks, and $8m short into another bunch of stocks. Then my gross leverage is 1.8 but my net long exposure is 0.2.
This type of fund structure seems a recipe for disaster, they not only have the 10% updrift working against the short side, they also are not able to earn interest in the short selling proceeds(because that was spent buying stocks and they actually have the PB margin interest costs!). You need be a absurdly skillful to beat this vig
I have no data on this but I would not be surprised if that is the structure most likely to lag the HFRI and if thats not the case its probably due the fact that in the last 10 years two large bear markets occured
Take a look at how the big equity L/S funds are setup. There is public L/S exposure data available on some. E.g. Marshall and Wace TOPS fund (one of the bigger European HF) had a 0.23 long exposure in September, 1.27 long and -1.04 short.Quote from Daal:
This type of fund structure seems a recipe for disaster, they not only have the 10% updrift working against the short side, they also are not able to earn interest in the short selling proceeds(because that was spent buying stocks and they actually have the PB margin interest costs!). You need be a absurdly skillful to beat this vig
I have no data on this but I would not be surprised if that is the structure most likely to lag the HFRI and if thats not the case its probably due the fact that in the last 10 years two large bear markets occured
Somebody posted a recent GS prime brokerage bulletin a couple of months ago with the aggregate equity long/short allocations for GS clients. Quite interesting.
For anybody concerned with short borrowing costs and individual short squeeze risk, there are always liquid equity futures to short. The easiest way to reduce directional market exposure.
So to get to the point: Gross is way off and overly broad in his assessment.
http://www.docstoc.com/docs/10462912/Goldman-Sachs-Hedge-Fund-Monitor
June 30: Net long exposure was 31%. This structure is the industry standard for equity L/S hedge funds.
June 30: Net long exposure was 31%. This structure is the industry standard for equity L/S hedge funds.
Quote from makloda:
Take a look at how the big equity L/S funds are setup. There is public L/S exposure data available on some. E.g. Marshall and Wace TOPS fund (one of the bigger European HF) had a 0.23 long exposure in September, 1.27 long and -1.04 short.
Somebody posted a recent GS prime brokerage bulletin a couple of months ago with the aggregate equity long/short allocations for GS clients. Quite interesting.
For anybody concerned with short borrowing costs and individual short squeeze risk, there are always liquid equity futures to short. The easiest way to reduce directional market exposure.
So to get to the point: Gross is way off and overly broad in his assessment.
Gross is talking about the hedge fund industry as a whole not one particular group. Check the article I posted back
That's what I said: Gross' statements are overly broad. He paints all strategies with one brush which is very naive.
Equity L/S hedge funds are the largest hedge fund strategy by assets. ( http://www.eurekahedge.com/news/images/08_July_EH_Key_Trends_in_NAHF2008_image04.jpg )
Equity L/S hedge funds are the largest hedge fund strategy by assets. ( http://www.eurekahedge.com/news/images/08_July_EH_Key_Trends_in_NAHF2008_image04.jpg )