Random Thoughts on the HF Industry

It's been a while since I posted (sorry @AndyLouis) so I decided to come back with something a little different from my previous posts. I'll continue the E&F posts at some point, but given recent market conditions I thought this was more appropriate. The below is a compilation of thoughts I've been having on markets and the hedge fund industry as a whole.

The hedge fund industry isn't going away

Bloomberg and the Financial Times have written quite a few articles recently that highlight "major" hedge fund closings. Whether it be an old, established firm closing its doors due to bad market conditions or a fund that can't meet redemptions, the financial media can't help but shout that HFs are going away. While these articles are great clickbait, they couldn't be farther from the truth. 2015 did have some funds close, but that happens every year. Too lazy to pull in the data & charts of HF AUM and closings, but 2015 was not a cause for concern that the industry is going away.

Stop comparing HF returns to _______

Stop. Just stop now. Every time I see an article about a HF or HF indexes underperforming the S&P 500 I want to throw something at my monitor. The goal of a Hedge Fund is not to beat a 100% long only index. In fact, the reason lots of large institutions put HFs in an asset class called absolute return is because they are supposed to provide a consistent absolute return, not beat the S&P. Regardless, the financial media & large pensions love to go into the spotlight and talk about the underperformance of hedge funds. If your hedge funds provide consistent positive returns throughout a market cycle you're getting your money's worth and more. Stop complaining about relative performance.

Hedge funds aren't hedging

Going off the last point, more & more HFs aren't hedging their portfolios anymore. Especially in L/S equity. I cannot tell you how many times I see a portfolio that is 80% net long and calls itself L/S. I'm sorry, but at that point your beta is probably as close to 1 as a Vanguard mutual fund. This is late cycle behavior when managers are trying to chase extra bps by going just a little longer. Unfortunately, they'll lose a lot more in the next downturn.

Everyone wants to be a hedge fund

A hedge fund is a structure, not an asset class. It's a comingled fund that typically charges above average fees. I've recently seen quite a few long only public equity strategies that are comingled funds with lockups and high fees. What? You're trading liquid public equities that you could easily exit in a few days of trading and you want 2/20 with a 2 year lockup and quarterly liquidity? Being a hedge fund is the cool thing to do now and long only equity managers are starting to do it. The point of liquidity notice periods is for illiquid investments and the higher fees are for superior returns in a full market cycle. Long only equity investors cannot provide this and therefore do not deserve these fees and structures. Yet, unsophisticated investors who want to sound impressive will invest in these funds, hence encouraging others to do the same.

Things are getting more complicated

This is the last point I'm going to make. I'm seeing more "new" strategies. Funds that do things that don't make sense or are hard to understand. My favorite was a placement agent who said "returns come from a variety of places" when asked what the drivers of a firm's strategy was. The strategy made such little sense that even the placement agent couldn't explain it. If it hasn't been done in the past, there's probably a reason for it. Why are you so lucky that you figured something out that all the other smart people couldn't? Not saying it can't happen, just very unlikely.

That's it for my rambling. It's an interesting time to be an investor. I think we'll see the landscape change over the next decade where the truly great hedge funds will continue to prosper under the premium structure and more of the lower tier funds will revert to traditional structures or close. More random thoughts to come in the future.

Comments (47)

Mar 8, 2016

What do you call a firm or structure which is focused on just knocking it out of the park? I understand that hedge funds are called such because they are supposed to always return positive returns, bull or bear, but what is the structure which is used for kill it or die returns?

"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller.

"Live fast, die hard. Leave a good looking body." - Navy SEAL

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Mar 9, 2016

Private Capital

  • Anonymous Monkey
  •  Mar 11, 2016

You could look at some CTAs. I work at one that has had some up 80% years and some down 20% years.

Mar 8, 2016

"The point of liquidity notice periods is for illiquid investments and the higher fees are for superior returns in a full market cycle. Long only equity investors cannot provide this and therefore do not deserve these fees and structures."

Could you elaborate, not sure I understand. A long only fund cannot achieve superior returns in a full market cycle?

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Mar 11, 2016
cerealhappenstance:

"The point of liquidity notice periods is for illiquid investments and the higher fees are for superior returns in a full market cycle. Long only equity investors cannot provide this and therefore do not deserve these fees and structures."

Could you elaborate, not sure I understand. A long only fund cannot achieve superior returns in a full market cycle?

I guess I should have worded this section better since a few people had qualms with it. I'll use an example to better explain. Over very long periods of time, the net returns of a long only manager and a L/S equity hedge fund may look similar (they shouldn't, but given the large dispersion of returns in L/S equity they might so we'll assume they do). But just because the long term returns may be similar doesn't mean the risk profiles are or that you're getting the same thing year over year. In the end, we care about long term returns but we still have to look at the month to month and yearly returns. Especially in the endowment space when you have grants or expenditures that need funding every year. Yeah, over the long term it'll all even out but if I have to cut a program because our portfolio drops 40% my board isn't going to be happy. I'll pay the extra fees and give up liquidity to know that while I may not get spectacular returns every year, I will get good enough returns.

So here's a numerical way to explain that. I have a manager that I invest with in early 2008. ITD his compounded annual net return is only a little higher than the S&P 500 over this time period and he's underperformed the S&P 5 of the last 8 years. So you're thinking, why would I keep investing with this person when I can get similar returns from an index fund and have much better liquidity? The answer is performance over a full market cycle. In 2008, this manager was down less than 5% and hasn't had a major down year ever. Additionally, he captures the large majority of the upside and while he doesn't perform as well as equities in a bull market, he does well enough to hit my return expectations. This is what I mean by superior returns in a full market cycle. No matter how great of an investor a long only PM is, he isn't going to be down only 5% in 2008.

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Mar 8, 2016

"Especially in the endowment space when you have grants or expenditures that need funding every year. Yeah, over the long term it'll all even out but if I have to cut a program because our portfolio drops 40% my board isn't going to be happy. I'll pay the extra fees and give up liquidity to know that while I may not get spectacular returns every year, I will get good enough returns."

Could it be that your argument for long only not deserving larger fees is due to being with an endowment and having a greater affect from volatility, versus a HNW individual who would be much more comfortable with market swings of a great long only manager?

Mar 8, 2016

I would say I agree with 60% of what you're saying.

  1. Hedge funds do need to be benchmarked against their peer group. You're right that it's stupid against the S&P 500, but they need to be benchmarked against their peer group in order to judge how they performed within their strategy. If they generated 5% annualized positive returns in a bull market cycle, but their peer group generated 20%, then they underperformed. No way around that.
  2. Stating that hedge funds aren't hedging isn't true. Read Goldman's recent hedge fund report that states a bunch of L/S managers are net short now. They can be 80% long, but they can unwind positions and go 50% the next year, which is exactly what we're seeing now.
  3. "The point of liquidity notice periods is for illiquid investments and the higher fees are for superior returns in a full market cycle. Long only equity investors cannot provide this and therefore do not deserve these fees and structures."

----This statement is false. Closed End Funds for equities have generated large returns before with leverage. More importantly, most hedge funds don't generate superior returns in a full market cycle. More often they have one or two superior years during a bull cycle and then have mediocre returns the rest. This roots out average hedge funds, but also makes it more difficult on deciding which ones to invest in. For every Glenview Capital, there's 20 mediocre funds out there.

Mar 11, 2016
blackjack21:

I would say I agree with 60% of what you're saying.

1. Hedge funds do need to be benchmarked against their peer group. You're right that it's stupid against the S&P 500, but they need to be benchmarked against their peer group in order to judge how they performed within their strategy. If they generated 5% annualized positive returns in a bull market cycle, but their peer group generated 20%, then they underperformed. No way around that.

2. Stating that hedge funds aren't hedging isn't true. Read Goldman's recent hedge fund report that states a bunch of L/S managers are net short now. They can be 80% long, but they can unwind positions and go 50% the next year, which is exactly what we're seeing now.

3. "The point of liquidity notice periods is for illiquid investments and the higher fees are for superior returns in a full market cycle. Long only equity investors cannot provide this and therefore do not deserve these fees and structures."

----This statement is false. Closed End Funds for equities have generated large returns before with leverage. More importantly, most hedge funds don't generate superior returns in a full market cycle. More often they have one or two superior years during a bull cycle and then have mediocre returns the rest. This roots out average hedge funds, but also makes it more difficult on deciding which ones to invest in. For every Glenview Capital, there's 20 mediocre funds out there.

  1. I disagree. The HF universe is so wide and disparate and the good funds don't always report their numbers. Peer group indexes have major survivorship bias and aren't a good way to judge potential funds. I find it better to have a set return expectation for different types of hedge funds and use that as a barometer. Additionally, comparing potential funds to funds you're currently invested with is the best way to see where they stack up. If you're a good institution, this is a much better comparison of where potential HFs stack up than an HFRI index.
  2. Yes & no. I've seen the Goldman and CS reports that show HFs are more short than they've been in a long time, but this is somewhat misleading. They typically get these numbers based off brokerage relationships. I can tell you from the funds that are pitching us and the people we're talking to, people aren't as short as the big shops want you to think. Additionally, net exposure is great but you also have to look at the gross exposure. If a manager is 150% long 125% gross, they are only 25% net long but you still have 275% of gross exposure to the market. If they are right on both sides this is great,but if they're wrong it can cause a blowup.
  3. See above post for more clarification on the statement you say is false and I think you'll understand. Most HF strategies aren't mean to have spectacular returns in bull markets. You're paying for below market upside for protection on the downside.
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Mar 9, 2016

Most of the alpha generated by hedge funds is, by the nature of their name, in down years. During a bull market the financial rags will point to under performance but in the down years they rarely come back and say "Wow, look ABC Fund is only down 1% this year and the S&P is down 20%. I guess we were quick to judge." That is why, in the long run, reputable hedge funds out-perform as an asset class. As the OP pointed out, the term reputable is the key word as there are thousands of sideshow acts posing as "hedge funds".

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Mar 9, 2016

How convenient, there's no way to assess the performance of the asset class and the industry in general. In the end, you're paying a lot more for a lot less. It's that simple. The industry cannot continue in its current state and its obvious. Markets are too liquid and too efficient. In the long-run, the industry just wont exist, but in the near-term its useful as it allows investors to hold a more broadly diversified portfolio

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Mar 9, 2016

There are indices that track hedge fund performance...

Mar 19, 2016

Dumbest shit I've ever read. How do you think markets become efficient in the first place? Oh wait, active investors... There will always be a place for active management.

"My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known."

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Mar 9, 2016

What are your thoughts on long only hedge funds that bring something unique to the table? Activist investing, small cap value, or simply having an awesome track record over the last 2 decades. I know quite a few long biased small cap shops that have crushed it for ~2 decades. Their biggest problem is their strategies aren't very scalable. As an investor it probably makes more sense to pay 2/20 for a small cap fund with <$500 mil AUM vs. a 1% management fee to a small cap mutual fund with billions in AUM.

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Mar 9, 2016

100% agree. I still don't know what a "long only hedge fund" is.

Best Response
Mar 10, 2016

The term "Hedge Fund" refers to the legal structure of the entity, it has nothing to do with the strategy other then the fact that being structured as a GPLP allows the firm to employ strategies that include, but are not limited to, going short, derivatives and illiquid assets or securities; mutual funds are legally bound to only go long and have a number of other restrictions that preclude them from purchasing certain securities based on risk/liquidity.

A long only GPLP could have merit, but almost exclusively within the smaller AUM range. There are potentially a fuck load of opportunities if your only moving 50M around. If you're long only in the 10 figure range then, yeah, GTFO.

The potential strategies and goals of a hedge fund vary tremendously. There's a large concentration within the absolute return space but that's not all there is. Some funds should be looked at as an "exotic" bet that exposes a portfolio to risk/return profiles that cannot be easily replicated in the market. In other words its a diversification tool and the fund's performance should be analyzed as a portion of a hypothetical portfolio rather than a comprehensive investment solution.

@Esuric Thanks for the finance 101 EMH platitudes. You never fail to come through with some trite academic dogma. I would ask you what your definition of efficiency and liquidity are, but I'm not going to as I could always just search it up on investopedia and get the same answer.

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Mar 9, 2016

The returns are shit, both absolute and relative, the fees are too high and they're coming down. The industry is contracting and it will continue to do so. That's all that needs to be said, really. It's glaringly obvious to those that don't have a vested interest.

Also, the EMH is not a platitude, it's among the most well-founded, empirically supported principle in all of economics. Sorry, but it is what it is. You shouldn't dismiss torrential empirical and theoretical support simply because it's inconvenient for you.

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Mar 11, 2016

I chose to ignore your original comment, but this is getting fun. Going to address all the points you're making.

Are returns what you say they are? That depends who you invest with. Are some hedge funds returns terrible on an absolute and relative basis? You bet they are. There are thousands of hedge funds out there. Who you choose to invest with plays a huge part in your return outcome.

Are the fees to high? Probably. That doesn't mean that some funds don't deserve it. I have a HF that is net 16% over the last decade and managed risk well through GFC. I'll pay him 2/20 every year if he continues what he's been doing. But does the run of the mill HF deserve 2/20? No. Hedge funds will charge what institutional investors are willing to pay, and as long as large pensions want to get into hedge funds to sound sophisticated we'll continue to see mediocre hedge funds charging premium fees. This doesn't mean that the model is dying and fees will come down. It means mediocre funds need to close or lower fees and the good funds will continue exactly as they are.

Are markets efficient? The fact that you so adamantly believe they are shows me your experience in markets. When I was a freshman in college I believed in EMH. I thought people who tried to beat the market were out of their mind and it couldn't be done. Boy was I naive. Saying EMH is true across the board is just foolish. You can argue that over very long periods of time (5-10 years) everything is efficient, but in shorter time periods almost everything is inefficient. The part of the market that is closest to always being efficient is megacap US equities, but even there you see signs of inefficiency from time-to-time. EMH gets disproved time and time again in areas such as Small Caps, Emerging Markets, & Iliquid investments. Just look at the return dispersions compared to the benchmark index return in those areas. The majority of managers beat the benchmarks over any reasonable period of time in those markets.

Mar 10, 2016

@Esuric I'm not completely dismissing EMH, and I have no vested interest in the HF industry in aggregate. I really don't care if the industry shrinks, funds that are worth their salt will always have access to more capital then they want/need.

I'm just not a soft brained pedant. I don't dogmatically subscribe to economic models/thought in their most rigid interpretations just because its supported by some intellectual "authority". Finance academics rarely ever have any actual experience in capital markets and 99% of their perspective comes from imagining a make-believe market that has no friction and unlimited liquidity and other nonsensical shit.

But I really don't care what your views are, its the fact that you feel compelled to add your 2 cents to this discussion. I mean telling people on a finance forum that markets are too efficient, therefore don't practice active Asset Management is just fucked. I don't think there's a single person that works in asset management that isn't familiar with EMH; The world isn't depending on you to spread the word.

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Mar 11, 2016

Eusiric, how cute, you're the kid who gave that AMA on Big 4 Valuation.

Thoughts on the fact that an overwhelming majority of M&A is value destructive to owners and shareholders? That means that corporate America should stop doing M&A altogether, right? Let's start with getting rid of Big 4 Valuation departments.

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Mar 12, 2016
  1. Hedge Funds disappearing - What do you think of the risks of a) Sovereign wealth funds needing to withdraw because of massive deficits, previously financed by high commodity prices, and b) baby-boomer aging causing pensioners to withdraw, in turn causing pension funds to withdraw. Seems there are some risks to the industry, as hedge fund growth over the past two decades was financed largely from these two sources.
  2. Hedge funds aren't hedging - If stock returns are positive over the long-run, it would make sense to have some exposure to beta. Over the long-run, I'd rather be invested in a fund that is some % net long than a fund with no net exposure. Also, as others have pointed out,
  3. Lockups - If you are a value-investor with a 3-5 year time-horizon, it would make sense to have a long lockup period, even if you're investing in public equities. Good value investors should do well over a full market cycle, albeit with high volatility.
    That being said, on the other end of the spectrum, Quantum charged 1 and 15 with 1 day liquidity. Do modern funds really think they deserve better terms than Quantum Fund?
  4. Things are getting more complicated - agreed, if you can't articulate a strategy, you literally don't know what you're doing. Furthermore, in most of the interviews I've read with managers who have invented a new strategy, the fund manager understood the strategy well enough that they could explain it to a lay-person.
Mar 12, 2016

EMH has its merits but being an absolutist is no way to go through life.

Mar 10, 2016

@Esuric EMH was around in the 19th century but people were still making fortunes by arbitraging convertibles in the 1970's. Sure peoples' PERCEPTION of value reflected the most current information, but their understanding of the value of a convertible was not fully developed, except for a relatively small minority who made risk free profits. Please don't try to qualify your argument because no one on this discussion is arguing about markets disseminating information efficiently. You were implicitly, but undeniably, invoking EMH to specifically attack the practice of active Asset Management, which is a fucking stupid thing to do. That argument isn't even theoretically sound, its actually self defeating. If no one practiced active management who the fuck would price securities? or would they just fall into place by accident???? Everyone owns ETFs, all wealth is held in passive strategies....now what? how do prices move to reflect new information???

Its one thing to be aware of economic theory and understand its implications and LIMITATIONS, its another to mindlessly use those theories to make shitty unsolicited arguments. I would actually be interested to hear a novel opinion/perspective regarding market efficiency, but your argument is banal and an affront to intellectual thought. I could open up chapter 1 of an investment text book and read the exact same shit. I could also read any thread on this forum and predict what your thoughts are because they are just so fucking bland.

Finance professionals aren't ignorant of economic theory...... we're just acutely aware of the fact that it has HUGE limitations. I could start listing them, but i'm sure most people on this forum are aware of them, but it might be worthwhile to just start an entirely new thread........ Ill title it "Dear Esuric,".

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Mar 9, 2016

You can earn a return higher than the return offered by the market because you accept additional levels and types of risk. You can construct an efficient portfolio that's riskier than the market. Often an ill-informed money manager will confuse a risky return with one that is "risk-less." This is because they fail to identify the various types of risk (such as liquidity, for example) embedded in the investment/strategy.

There are market dislocations in the near-term but there are none in the long run. The "long-run" is becoming shorter as markets become increasingly liquid and as they advance with AI and HFT.

How will markets price assets without money managers actively managing structured products with high degrees of leverage and with lockout periods? Talk about stupid fucking questions.

Mar 13, 2016

This is rather silly...

All return, regardless of type, is compensation for some form of risk. I don't think there's anyone who disputes this.

The statements you're making with your EMH commentary is that markets, and humans more generally, always price risk correctly. This suggests to me that there are entire swathes of economics and other sciences that have totally passed you by. In general, as othe people have suggested, you should maybe try to avoid making grand sweeping generalisations.

Mar 10, 2016

I didn't say anything about leverage or structured products....I can't believe that you're so desperate to win this argument that you would resort to using straw man arguments. My point was that EMH can't be used as an argument against the entire practice of Asset Management.

Again thanks for the finance 101 lecture, but there was no need for the refresher.

You keep giving evidence that you have no idea wtf is going on. I mean its not hard to tell that you have no experience in the market outside of a textbook. ..... do you even know how the majority of HFT strategies work ???????its actually fucking hilarious that you would use that argument because the vast majority of them have absolutely nothing to do with the actual economic substance of the securities that they trade. If anything, they exploit market structures and incentives and cause market inefficiency.

But you completely dodged my point. Why have so many arbitrage opportunities been exploited in the past - e.g convertible arbitrage? and please don't say "Money managers were taking risks that weren't identified" because as soon as the wider market figured out what was going on the arbitrage opportunity vanished, so it couldn't have been a function of higher risk. My point is that the wider market is not always - actually usually never- the absolute barometer for value and financial risk, some people will always have a better understanding of whats going on, and unlike one of the most ridiculous premises of EMH these people don't have access to unlimited capital and their analysis won't be completely reflected in market prices.

This is really a matter of subjective relativism vs objectivism, but you probably don't realize that. A derivative of the reasoning behind your rigid interpretation of EMH can be the following: The market bets on whether the world is round or flat...... the market says its flat, therefore its flat. BUT THAT DOESN'T MEAN THAT ITS SO. IF THE MARKET SAYS THE PROBABILITY OF APPLE DEFAULTING ON ITS DEBT within the month IS 100% DOESN'T MEAN THAT IS WHATS GOING TO HAPPEN.

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Mar 10, 2016

@esuric Thanks for alluding to the financial crisis via structured products & leverage. Just want to further my point and point out that if anything the 2008 financial crisis was an exercise in passive Asset Management. People took market prices & shitty research at face value rather than doing their own in-depth research and ended up holding shitty ass credit. Yeah some of them were aware of what was going on but had fuck up incentives but there were many that just were ignorant. Not only did those people get their faces ripped off but they contributed capital to further provide liquidity to a structurally distorted market.

There's just so much wrong with your arguments it actually makes me sick. What happens to corporate accountability if everyone is holding a passive portfolio??? should we just take it on faith that companies are performing adequately?? Who prices securities???? maybe the issuers? again we'll just take their word on faith. and as an added benefit no one will actually have to prepare financial results because everyone is a passive investor and there's absolutely no point in conducting financial analysis. The MARKETS ARE WAY TOO EFFICENT FOR THAT KIND OF NONSENSE

See how fucking stupid your argument is ????

Mar 11, 2016

Kids not in the industry spew out terms like EMH without even understanding the most basic and small market nitpicks that create inefficiencies.

Case in point, many hedge funds wanted to short Shake Shack (SHAK) out of the gate. The cost to short was over 100%. This artificially boosted the price and created many short squeezes for months as funds awaited future secondaries to increase the float. Funds had to box their shorts which helped create more volatility. We saw 10-20%+ swings and hundreds of millions of market cap moving with absolutely 0 news. What an efficient market!

But then again, Esuric is a Big 4 employee so obviously he's already accounted for all of this and more when he's tutoring the world on financial economic theory.

    • 3
Mar 9, 2016

I wonder what you're doing with your life now.

    • 1
Mar 11, 2016

Moved to the quant side and doing very well, was promoted recently and making 2x what I did at my last job (Tiger cub in Dallas) in 2016 during a bull market.

Glad to know I made such an impression on you that you had to reply almost 3 years later and had to wait for a bear market to come back at me lol.

Giving you a silver banana, have a good 2019!

    • 1
Mar 10, 2016
  1. when did I attack your work? I implore you to actually point out a fallacy in my arguments. I'm not the one throwing around straw men arguments.
  2. So now your concede on active management and attack hedge funds specifically...... I'm satisfied enough...... I mean there's no point to continue this conversation, you're clutching at straws...... So the future of Asset Management will be done exclusively through trusts and corporations via HFT....... OKAY GOTCHA CHIEF! thanks for all the insight....... I never knew a M&A guy with 0 experience in markets would be the oracle of the investment industry. this is hilarious
  3. I cant find anyone using the specific label "arbitrage strategy" for illiquid or small cap stocks. People were simply saying that many funds employ those strategies. On a similar note, I wonder who is going to invest in illiquid assets and small cap stocks once hedge funds are gone. My guess is the HFT trading systems? right!?

Can't think of anything more pathetic than a 3rd rate M&A drone trying to attack an industry that they have absolutely no involvement or stake in because "the fees are just too high". Were you molested by a hedge fund as a child or something?

    • 2
Mar 9, 2016
yourboss'sboss:

So now your concede on active management and attack hedge funds specifically...... I'm satisfied enough...... I mean there's no point to continue this conversation, you're clutching at straws...... So the future of Asset Management will be done exclusively through trusts and corporations via HFT....... OKAY GOTCHA CHIEF! thanks for all the insight....... I never knew a M&A guy with 0 experience in markets would be the oracle of the investment industry. this is hilarious

When did I say that I'm against all forms of active management? Please, show me. My first comment was "the industry cannot exist in its current state and its obvious." Do you understand that "cannot exist in its current state" is not synonymous with "cannot exist at all?" Does this register in your tiny brain or no?

yourboss'sboss:

EMH I cant find anyone using the specific label "arbitrage strategy" for illiquid or small cap stocks. People were simply saying that many funds employ those strategies.

BlueWing:

EMH gets disproved time and time again in areas such as Small Caps, Emerging Markets, & Iliquid investments. Just look at the return dispersions compared to the benchmark index return in those areas.

There, happy?

yourboss'sboss:

On a similar note, I wonder who is going to invest in illiquid assets and small cap stocks once hedge funds are gone. My guess is the HFT trading systems? right!?

Didn't I tell you that my HFT comment had nothing to do with trading strategies and was related to market innovation? Also, you need hedge fund managers to invest in small caps? Huh? As far as illiquid investments are concerned - there won't be any in the future. There will be active markets for all assets.

yourboss'sboss:

Can't think of anything more pathetic than a 3rd rate M&A drone trying to attack an industry that they have absolutely no involvement or stake in because "the fees are just too high". Were you molested by a hedge fund as a child or something?

You carry yourself very poorly and you're a weak thinker. Your reaction to arguments that you disagree with is to get emotionally aroused to the point of rage. Half of your responses are littered with caps and grammatical errors. You've spent as much time attacking my character and work, of which you know absolutely nothing about, as you have responding to the actual content of my posts. At no point have you provided any form of actual evidence to support any of your positions.

Mar 10, 2016

This is my last post because I have unfortunately realized that not everyone can think on their own. Some people need Eugene Fama to tell them whats right and wrong, and if Eugene Fama says something then they believe it as absolutely true across all dimensions of reality..... intellectual self-reliance is rare in this world, probably even rarer in the M&A world.

Euclid's axioms of geometry where taken as absolute truth for over 2 millennia because people were too busy trying to prove them right. Euclid was seen as an intellectual authority and people could not fathom that he could have over looked anything. It wasn't until the 19th CENTURY - 2000 YEARS LATER*** For those that are emotionally sensitive, the capitals are for emphasis*** that non-euclidean geometry was proven as a possibility. Euclid wasn't wrong, but his postulates only held true in planar space. People that take theories at face value and argue them vociferously because of a puerile need to show deference to authority hinder our intellectual evolution. That's why that sort of thinking angers me.

EMH, and all economic conjectures, are applied to a simplified/2 dimensional model of the world. Its not meant to reflect reality 100%, its only meant to illustrate the relationships between salient variables. Those that are not bereft of intellect, realize that EMH demonstrates that markets are subject to competitive forces which can make it difficult to "outperform" the market. These forces, in reality, vary with time and other variables but they are always present to a significant degree. Anyone that works in the markets should be aware of this and have their eyes open to the fact that its never EASY - as opposed to impossible - to outperform the markets with consistency.

Arguing against hedge funds and active management is the exactly the same thing. I thought for the sake of brevity I would not have to point that out. Like I said in my first post, a hedge fund is simply a legal structure that allows investors to operate under less regulatory burden. The strategies, substance, performance, merit, fees, size vary tremendously. Unlike what some fools think, the industry is not monolithic, so making sweeping statements about the industry is fucking stupid especially coming from someone that has no experience in that industry. Are there many funds that are shit??? yeah but who the fuck didn't know that? Is there reason to believe the industry will evolve over time ? Yeah, but then again, the whole world is in flux at all times just like it was in the 70's, 80's, 90's, 00's. People have been misguidedly questioning the merit of the hedge fund industry for decades, as if its something that is their responsibility to get involved in, and as if there's a way to answer that question. what did you think people said after LTCM for fuck sakes?

All your posts = platitudes, platitudes, platitudes.

If anything hedge funds are going to be in the best position to capitalize on market innovations. They aren't bound by regulation to the same degree as banks and other FIs that have to raise their hand to take a piss. I mean who the fuck do you think is involved in HFT? Citadel is one of the largest players...... and funnily enough they are now the largest DMM on NASDAQ.........hows that for market efficiency/liquidity. A hedge fund is now one of the largest providers of liquidity in one of the largest EQUITY MARKETS.

Oh yeah and Wall Street hates HFT? yeah again you should stop making stupid sweeping generalizations that make you sound like a childish cunt. Some people on wall street hate it, some people are loving it, its not monolithic.

Oh and as far as proving "proof" you childish cunt.... Which one of my arguments require empirical proof to be valid? Some things can be analyzed through internal logic alone, but obviously you aren't able to understand such non-subtleties; This isn't a high school essay. You keep invoking the word fallacy to attack my arguments while your entire line of reasoning is either a blatant appeal to authority or a straw man. Your "proof" is pretty much "I'm right because Eugene Fama said so!", or you misconstrue my arguments for something ridiculous and proceed to attack that.

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Mar 14, 2016

It's true that a number of hedge funds don't deserve the fees they charge but all this stuff about markets being efficient is pretty hilarious

Does anyone know if Esuric works in finance or some other field ?

Mar 14, 2016

msf into big 4 valuation apparently

Mar 11, 2016

This thread definitely took a much different turn than I expected.

Mar 15, 2016

I don't want to be too condescending, but before you tout the EMH in a hedge fund forum please be sure that you actually work at a fund in an investment role (analyst/trader) and not spouting what you've read in a college textbook. As a trader I see examples of market inefficiencies everyday, and the ability to spot and capitalize on these opportunities is what differentiates the good funds from the bad ones. EMH is a great way to view the market from a theoretical perspective, but it just doesn't hold up on a stock-specific basis at the granular level. That's a fact.

As far as the HF industry in general - I do agree that fees have to come down and there will be consolidation. But at the end of the day there is significant institutional demand for alternative investments - whether they be PE, VC, hedge funds, etc. I think the barrier of entry and the hurdles for newly launched funds are inching higher, so we'll see consolidation of AUM to the larger funds. But the HF industry isn't going anywhere.

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Mar 11, 2016

You can't control the market man. It's like, part of mother nature. It's like super efficient you guys omg you don't even know!

Apr 10, 2016
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Mar 11, 2016