What % of Hedge Funds/Institutions actually make money?

[helpme_please]

No, simply that top 100 funds out of 3 thousand manage about a trillion of the total of 3 trillion. It’s a winner take all industry

Being winner-takes-all, then performance will suffer eventually. The bigger the AUM, the poorer the performance. It seems going back to cheaper, passive S&P500 ETF makes more sense.

 

[toc]

This metric should be broken down into funds from

0-500M in AUM
500-1B in AUM
1B and above

Once the AUM reaches certain point it becomes hard to take quick positions and exit them.

Greedy bastards refuse to hire more analytical support to dive into more stocks and instruments.

Also hedge fund formula should have some mandatory hurdle rate beyond which the 20% incentive kicks in. Giving 3% hurdle for inflation might be a good start.

 

[learner2007]

I always thought most hedge funds made money since they were "Professional"

Call them what you may, but just because they have more information than you, and have a room full of guys with a PhD, BB, and the best software, they still can do no better than buy near the start of a trend and exit near the end. You too can do that, after a good bit of study, of course!! Then you can call yourself "Professional"!!

 

[tomorton]

I think we've already decided that whatever the funds do, we have at least the possibility of doing better.

 

[Robert Morse]

What % beat the S&P?

This may not be a fair metric. This assumes the comparison is being 100% long the "market" while most of those participating with hedge funds are looking for other investments that don't replicate the "market" from a risk standpoint.

 

[lovethetrade]

Call them what you may, but just because they have more information than you, and have a room full of guys with a PhD, BB, and the best software, they still can do no better than buy near the start of a trend and exit near the end. You too can do that, after a good bit of study, of course!! Then you can call yourself "Professional"!!

Good, you're learning.

 

[Robert Morse]

Good, you're learning.

I'm not a full time trader anymore and have a full time job. I have allocated toward hedge funds and CTAs so they can do that full time and I can do my job. Even if you are a full time trader, you can't be good at everything. If you have excess capital and can allocate it toward a manager that does something different than you, to me, it makes a lot of sense. I'm not at all concerned with the 2/20, only what I net and what risk was involved in getting me that.

 

[learner2007]

Good, you're learning.

Who, me? Learning what?

 

[sle]

I would like to follow these skillful hedge fund managers.

I don’t see how knowing which multiple manager fund is able to beat the market would help.

Wow, meaning it's kind of like the retail trader industry, few make big $$$. The rest make little to no money I assume?

No, the few manage the majority of money (which, of course, means they make the most on fees). In terms of performance, I’d bet that there is inverse correlation with AUM.

You too can do that, after a good bit of study, of course!! Then you can call yourself "Professional"!!

You can do anything with a bit of study. I doubt you will be beating the performance of HFT guys any time soon, though

One thing worth remembering is that we are comparing two very different animals. A broad group “hedge funds” includes everything from long-short to ultra high frequency. Some of them make really nice returns all the time (like the HFT guys, for instance), some will only make money at the time of crisis (tail funds, or so they promise) and some have a mix of the above.

Also, it’s much easier to make good ROC on a smaller pot. I personally found that growing capacity beyond 25/year was a real challenge for my current set of strategies (while keeping reasonable risk metrics). Someone who does stuff like HFT is likely stuck at a quarter of that amount.

 

[Maverick74]

One other thing to mention here is, unlike many small retail traders on ET, most HNW individuals are not investing in hedge funds to get rich. They already are rich. They are investing to keep their money. Usually for their legacy whoever that is...kids, endowments, trusts, etc. These people could care less about beating the S&P 500. They care much more about tax optimization and keeping what they have.

On the other end of the spectrum, most little guys on ET are not rich and they think trading will make them rich so their concerns are not holding on to wealth or minimizing taxes but going for super high returns. The idea of blowing out for most on ET is really trivial since for many that equates to losing a few thousand dollars. Easy to come back from that. Once you have millions in the bank, taking risk is the last thing you want to do.