That's a good point, Aaron. However, there were still at least hundreds (and I'll have to check, but I'm quite sure more than 1000) of hedge funds and CTAs during the 80s (and I'm pretty many more created from 1990-93), so the fact that hedgefunds that have been around more than 10 years being rare is I think at least noteworthy.
the life cycle of hedge funds
- Thread starter hermit_trader
- Start date
That's a good point, Aaron. However, there were still at least hundreds (and I'll have to check, but I'm quite sure more than 1000) of hedge funds and CTAs during the 80s (and I'm pretty many more created from 1990-93), so the fact that hedgefunds that have been around more than 10 years being rare is I think at least noteworthy.
Quote from Scientist:
Is that true?
But wouldn't it be difficult to start all over again, i.e. get a new client base etc?
What a terrible business to be in! And I'm considering opening one myself!
Maybe I should just enjoy the freedom of being a private trader?
~Scientist
Brother Scientist, This is only true if you set a "high water mark" in the funds offering. You can structure compensation almost anyway your imagination can think.
State of trade,
indahook.
After Enron, you still trust the auditor /accountants?
Quote from omcate:
Look at LTCM, D. E. Shaw, Tiger Fund, Quantum Fund etc. All of them have been very successful for a long time. All of them suffered huge losses between August 1998 and August 2001.
When someone has been successful for many years, his ego will probably be bigger than the solar system. He'll think that he is invincible, and behaves like a God. There is only one way to do things --- HIS way. This is true for people at Wall Street or Academia. Unfortunately, the market is extremely creative and good at humbling mortals, and faked gods.
Great post.
I just wanted to say that these hedge funds come and go left and right. I wouldn't touch any of them.
Seems like every other finance professional thinks he/she can run a successful hedge fund. Apparently it's so easy that everyone is doing it. But few are actually making money.
Most funds do not make money unless they are able to get back above the "highwater" mark after a losing year.
Most hedge-funds are based on a "1 and 20" structure of compensation ( 1% management fee and 20% of the profits go to the manager ) unless you are someone like a Soros or a Stevie Cohen that routinely charge 4% management fees due to their track record.
Most hedge-funds are based on a "1 and 20" structure of compensation ( 1% management fee and 20% of the profits go to the manager ) unless you are someone like a Soros or a Stevie Cohen that routinely charge 4% management fees due to their track record.
The Quantum Fund started out with about $1.3 Billion dollars back in 1985. Everything was going extremely well, with the fund growing to almost $20 billion in the 90's until Stanley Druckenmiller ( who Soros brought in to manage the fund ) got swept up into the "this time it IS different" thesis of the equity market and started making some BIG TIME purchases of high tech ( ie. Verisign ) at what wound-up being the highs and got killed.
The Tiger Fund got hurt from "redemptions" because Julian Robertson refused to play the momentum game that many other market participants were playing. He said that he no longer understood what was going on in the equity market valuationwise, and decided to pull the plug on his fund. Yoiu have to remember that many of these long-term hedge-fund managers that have done very well are multi-millionaires and simply don't have the need or desire to be criticized by shareholders when they have a bad year, or are underperforming. I mean, who really needs this, especially when you have a ton of wild animals to feed that roam around on your 20 acre estate in Greenwich, CT.
When investors are used to making 30 and 40 and 50% on the year ( SAC has averaged 54% a year until 2002 ) they become spoiled and easily discouraged. Robertson refused to jump into the momenutm game and wound-up closing down his fund.
In the end, Julian Robertson wound-up being right and got the last laugh.
The Tiger Fund got hurt from "redemptions" because Julian Robertson refused to play the momentum game that many other market participants were playing. He said that he no longer understood what was going on in the equity market valuationwise, and decided to pull the plug on his fund. Yoiu have to remember that many of these long-term hedge-fund managers that have done very well are multi-millionaires and simply don't have the need or desire to be criticized by shareholders when they have a bad year, or are underperforming. I mean, who really needs this, especially when you have a ton of wild animals to feed that roam around on your 20 acre estate in Greenwich, CT.
When investors are used to making 30 and 40 and 50% on the year ( SAC has averaged 54% a year until 2002 ) they become spoiled and easily discouraged. Robertson refused to jump into the momenutm game and wound-up closing down his fund.
In the end, Julian Robertson wound-up being right and got the last laugh.
I think there are two major problems with hedge funds maintaining consistent profitability through the years.
The first problem has to do with a particular strategy working consistently over time. Many strategies will work well for a few years, then fail at some point. This is for many reasons, from technology implementation to regulatory changes to trader psychology and so on.
The second problem, really an extension of the first, is that if the strategy is successful, then a great deal of money begins to flow in. As someone mentioned earlier, if you are successful running something with 1M, it may not be doable with 100M or 1B, but that's what you may wind up with under management if you perform well. This great escalation in funds causes the manager to have to constantly reinvent himself to keep the returns coming in. That in turn causes problems as he leaves his comfort zone and has to invent new strategies to deploy all the capital.
That said, there are many small to midsize guys who have been closed for many years that are very successful. You don't hear about them because they aren't managing billions and moving markets a la Quantum etc...
For every one of them, there are many others who have indeed blown up.
The first problem has to do with a particular strategy working consistently over time. Many strategies will work well for a few years, then fail at some point. This is for many reasons, from technology implementation to regulatory changes to trader psychology and so on.
The second problem, really an extension of the first, is that if the strategy is successful, then a great deal of money begins to flow in. As someone mentioned earlier, if you are successful running something with 1M, it may not be doable with 100M or 1B, but that's what you may wind up with under management if you perform well. This great escalation in funds causes the manager to have to constantly reinvent himself to keep the returns coming in. That in turn causes problems as he leaves his comfort zone and has to invent new strategies to deploy all the capital.
That said, there are many small to midsize guys who have been closed for many years that are very successful. You don't hear about them because they aren't managing billions and moving markets a la Quantum etc...
For every one of them, there are many others who have indeed blown up.
Quote from hermit_trader:
After Enron, you still trust the auditor /accountants?
Funny you should mention this... the big boys want to see the name brands but your regional accountant specializing in partnerships and smaller hedge funds will probably do a much better job. We went to one of the majors and they put some idiot newbies on the account who f***ed up some of the returns at 10K a pop. Find an auditor that fits your fund size; otherwise, you'll be paying up the wazoo for inferior service.
actually the more wealthy you are the more conservative you should get. once you have it you shouldn't risk it.bonds and index funds would be your vehicle not some hot shot hedge fund.