Only 3 Hedge Funds outperformed the S&P500 in 2021. Thoughts on the future of the industry? Interested to hear how people think Hedge Funds can deliver value going forward.
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1. This question gets asked literally every year. Go read.
2. There were definitely more than 3 funds. You're just using that chart I've seen floating around with like 30 funds on it. There's are literally 10s of thousands of hedge funds.
3. Not all hedge funds are generalist US equity long/short funds. They're not all designed to best the S&P.
4. Risk adjusted returns and correlation baby. That's the name of the game in hedge funds.
100%. Plus, even the long/short equity funds either partially or completely hedge beta, so in a big up year for the market, underperformance against that benchmark should be expected even for funds that generated significant alpha
Correlation is a big thing.
When the only thing that you have seen in your life is markets going up, it is normal to think that stonks only go up, and that investing in ETFs is the smartest way to go (especially if they are 3x levered). It is also normal to think that it doesn't make sense to invest in hedge funds. At the end of the day, what do you need to hedge for, if stonks only go up?
Riding the bull market paying bps Vanguard fees, until the bull turns bear.
The litquidity stories from this past week on this topic were hilarious - really shows the ignorance of the guy that runs the account
Dude was non-target back office, he's probably never discounted a cash flow in his life
I don't think people understand how impressive 7% returns with bond-like volatility and 0 market correlation is.
but allocators increasingly do - hence why those funds are sucking up all the AUM
Just look at Citadel or Millennium. Why wouldn’t you want to invest with them? Double digit returns, beta neutral, and you know they’re pretty diversified given the sheer number of portfolios across strategies operating in the firm (versus some SMs). Where else can you find such returns if you want to diversify your exposure away from beta?
Thanks JPow 💸
You need to think of hedge funds and other asset classes/funds as products that offer specific mixes of benefits. Think of who is buying into funds...it's institutional allocators with billions to deploy. They aren't solving solely for returns, but also need to solve for liquidity needs, etc...
On that note, hedge funds are usually not just solving for raw returns...so it's a silly way to measure their performance. If I am a waffle house and you come in complaining about how much you hate waffles...well...don't come to the waffle house.
Looked up the list everyone's talking about on this thread. Wow D1 Capital did well this year even with their GME exposure. Wonder how they got their 17% return with all the "growth" stocks getting crushed later in the year. Might be because of increased valuations on the private side.
D1 didn't finish the year up 17%, that was only through November. They lost ~12% in December and finished the year up around low to mid single digits. Also that flagship fund can have up to ~35% invested in privates so their public only performance was prob even worse than mid single digits (likely finished the year flat or even red in publics alone).
Yep that makes sense
The public book was was down more than 10%
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