Is Long/Short Equity Hedge Fund Dead??
I keep hearing that long/short equity hedge funds have been struggling to generate alphas. Is it true? What do you guys think about the field in general? Where can I learn about them more?
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Hi, I am a newbie just joined WSO.
I am currently working in FoHF, so my job is to talk with PMs/IRs of equity L/S managers.
IMO, my short answer is Yes, they are struggling 'to generate alphas' because ETFs are bad for long/short.
However, it doesn't necessarily mean L/S HFs are struggling since many of them have long-biased and market is going in just one direction for many years.
Hope this helps. Thanks
Thank you so much for your reply. I have an interview with a fund of funds in a few days. May I ask you more questions please?
Absolutely. I am based in Asia but investing in HFs in developed coutries. So i may answer your questions on areas that I am familiar with. Good luck to your interview!
How come they are not struggling if they are struggling to generate alpha?
so basically in order for you to make money on shorts, the companies have to be really crap and mess up badly, ie bad business strategy, business models which are suffering from disruption, fraud etc. So basically only the really good short sellers have been able to make money. Those people with minimal skill, they made no cash. Which is only fair.
L/S equity is a very tough business in a broad, seemingly durable multi-year bull market. Will be interesting to see how things shake out once this business cycle ends
I am seeing more and more candidates from top hedge funds interviewing for private credit and mezz opportunities - their view is yes it is not going great and the long term path doesn’t seem as viable...
Why private credit and mezz?
and why not private equity? seems more relevant as is also equity investing just on a longer timeframe
to dumb it down, it's just frankly less efficient and more opportunities to add value IMO. or more candidly, it's probably a better place to hide out because while your $ upside is not as high, your downside is unlikely to be wiped out (unless you tried to catch the knife on some retailers...)
private equity skillset isnt that transferrable.
To simplify they do not need to compete with trading algorithms or passive index funds which both distort their markets.
Passive because it sucks up money and buys everything changing the time horizons of when market moves occur. Algos because they A) front run when you want to buy or sell B). Occur moves to happen very fast when they happen (withness February) c) mess with your risks systems
Those areas have similar fundamental analysis but do not compete with those two.
I don't think that's true. I have seen a handful of people go from PE to private credit and mezz, but not from hedge funds, especially not top hedge funds. As a PE fund, you can basically chose from a wide variety of private credit and mezz providers and spread just keep going down, while leverage is going up, due to the amount of capital being raised and competition with banks. I would argue that the industry outlook isn't that great as well. Additionally, the private credit and mezz business is completely relationship driven and I just don't see people from a hedge fund going down that route as the skillsets are quite different.
If you are sharp and at a top buy side shop, I don’t give a shit if it was citadel l/s, gso credit, or black stone PE - you can make moves and change what you are doing. I have hired three people on my team all with different backgrounds who switched into a totally different strategy. Is it easier to do it with a certain background yes , of course, but the views I keep hearing on this site about where you can go sound like they are coming from some total risk averse, nerdy corporate banking guy at Citi who is trying to justify his sorry ass position and inability to make a move.
Those areas are doing pretty well these days, top funds pay extremely well and give material carry - also, I think it’s a more thoughtful approach to principal investing and it’s a longer term career path vs long/short. At least those are some reasons why I believe folks are interested vs betting on earnings cycles and PMs getting fired every 3 years
Yes, is det. And he didn do nuffin.
Is Long/Short equity hedge fund dead? (Originally Posted: 03/12/2018)
I keep hearing that long/short equity hedge funds have been struggling to generate alphas. Is it true? What do you guys think about the field in general? Where can I learn about them more?
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