Strategies that will continue to flourish?

We are moving towards a world where all successful HF's (large percentage of overall AUM) will be residing in quantitative HF's. Humans will be irrelevant in the HF space in 25 years when it comes to making real-time decisions (discretionary human decision making).

Quant funds (and exceptional outliers like Warren Buffett-type fund managers) will have their cake and eat it too.

IMO, there will be two types of funds in the future: 1- Quant/ai only funds 2- human + quant/ai funds

I don’t necesarily agree with the prevailing sentiment here of “L/S Equity is dead, the future is quants”. I think what’s happening now with the shutdowns is just an issue of a) cyclicality and b) over saturation (these aren’t new ideas of mine, others have talked about this before so I won’t pretend to take credit). On a), people get complacent in a long bull market with low vol (#shortvix) and don’t think 2&20 is worth paying when the best trade is long the indices. On b), there are a ton of funds out there and, as with all markets, when there’s decreased demand, supply will decrease shortly thereafter. Judging by this December, I wouldn’t be surprised to see L/S come back into vogue over the next few years.

I think it’s fair to say quant/ai will play a more prominently role in all strategies going forward, but this is more of a general global trend not specific to the HF industry in my view so not sure why we should be worried about this.

Illiquid credit. Technically not a hedge fund strat but would be very difficult for this to ever be automated

I guess this question really comes down to what you think hedge funds do. Originally, global macro and equity long-short funds had information asymmetries that allowed them to outperform the market (at least at times). I know some excellent stock-pickers, but all of their knowledge can be programmed into an algorithm. Even very traditional l/s guys have invested massively into technology (guys like Maverick, for instance, who essentially had to reinvent themselves to survive). I think that if you want to compete on the quality of your analysis, that's a game a human loses in the near-term to a machine.

I started my career as a global macro trader and got out of the business early precisely because it was a long-term losing gambit. It was clear to me more than a decade ago that I wouldn't make it to 40 before all the macro PMs were put out of business. I still have some friends who trade for top funds, and I wish them luck over the next few years because I don't see a lot of LPs writing checks to open new macro funds 5 years from now, so they need to make their money while they can. As it turns out, being a trader doesn't really prepare you for doing anything else with your career.

That said, there are a lot of dumb LPs. The best talent in finance doesn't generally go into endowment, pension fund, foundation or family office investing. At least, historically, that was the case. We have definitely seen a professionalization of the space over the past decade, but there are plenty of hangovers from the old days whom I wouldn't trust to babysit a box of Fruit Loops let alone my money. The problem is, there is money all over the place. It doesn't just sit in NY, SF, Chicago, etc. There is endowment money in Indianapolis, St. Louis, KC, Omaha, etc. But there aren't a lot of analyst or associate programs or any investment banks in those cities, so there isn't a meaningfully-sized pool of juniors to take up positions within the LP community in those cities, so the institutional investors rely more heavily on investment consultants than they probably should. And those investment consultants aren't exactly top talent either.

One of the guys above mentioned how much of a relationship game the HF space really is. This is true for the vast majority of private investments. It's all about your ability to raise and retain capital. But CIOs aren't placing new money with under-performing managers against the advice of their investment consultants just based on relationships. Track record trumps relationships, and huge swaths of HF strategies have just sucked recently.

The argument used to be that hedge funds generate alpha, outperfoming in all market conditions. That story has morphed, with IR spin doctors now claiming they're 'hedge' funds and that their performance in bull markets might underperform and their performance in bear markets should outperform. But that's not true at most funds. There are loads of funds out there just swinging for the fences, missing, and proving they're really offering levered beta. No one should be paying any sort of management fee for levered beta.

But those same LPs are going to keep trying to beat not just the market, but one another, so they're going to keep trying to pick winners. You see, a lot of their pay packages are not just based on outperformance over some market benchmark, but how they compare to a specific peer group. If you're a not-for-profit hospital endowment, for instance, you're going to be compared against other similarly sized endowments at peer institutions. So long as their asset allocation doesn't materially change, you have little incentive to alter yours because even if you're right, you're not going to get compensated much better than if you're just slightly better than your peers.

While there may be anecdotes of CIOs operating differently, in aggregate, you tend to see their incentive structures more or less play out as I just described, so it may take a decade or more before you really see the death of many strategies. That gives some funds enough time to reinvent themselves and survive. As a result, I don't think it will all be pure quant funds in the future, but all funds are going to be more quantitatively-driven, and the ones that survive will be the ones who have invested and continue to invest in technology.

If you want to work in markets in the future, you'd be far better off getting an engineering, math or physics degree than anything else.

most of the comments here are focused on the "asset side" of edge, but the "funding" side is more durable, just like with any bank the best advantage is a great depositor (funding) base. The only enduring edge for any fund or strategy is having permanent capital. The second assumptions most L/S and quant masters of the universe implicitly presume is that alpha comes from being smarter and faster than the next guy in nyc. in reality having an investment culture that emphasizes common sense and being less dumb can be good enough.

Shareholder Activism

I believe event driven investing has a strong future, especially within the healthcare context. Given the highly technical nature of healthcare events (e.g clinical trials - phase II/III outcome based investing), they will not be completely automated in the near future. Sure, data driven statistical analytics will play a greater role in discerning winners from losers but basic scientific research involved in making such trading decisions (e.g disease development pathways, drug mechanism of action, etc) cannot be automated. Thoughts on this?