What is a Hedgefund?

yayaa's picture
Rank: Gorilla | 712

Hi Community,

Let's break down hedgefunds for a minute. I am aware, for the most part, the role they serve for society. However, I would like to ask a few questions to some experienced people who are in the industry.

1) what is the main role of a hedge fund firm. Day to day activities?
2) what are the most popular investments instruments they participate in?

I understand hedge funds invest in stocks, real estate and derivatives etc. But since HF have not been performing well lately. Why not put my money in an ETF, Index fund etc. instead to achieve a higher return? Without being biased, what edge to HF have? I can invest my money in the stock market and achieve a higher return like Warren Buffet's argument. Am I missing something that HF do? Thanks.

Comments (10)

Oct 2, 2017
Oct 2, 2017

Instead of wasting your time by sending that frivolous link, you could've answered my question... Anyways, for future reference, don't be that immature guy in this helpful community. Contribute something instead.

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Oct 2, 2017

Actually I thought it was a perfectly good use of my time. There was a point to it though - no where in your post did it say that you tried to actually search for that information on this very problem. Instead of actually doing some research, you want others to answer for it. Because here's the thing, USE THE DAMN SEARCH FUNCTION BEFORE YOU ASK A QUESTION! Odds are, someone has asked that question in the past and you're not the first one to do it.

Oct 2, 2017

Investors pay hedge funds an outrageous amount of fees to perform well. Hedge funds are designed to provide absolute returns meaning that even if there's a crash or bear market they are still able to provide returns unlike the relative returns of a ETF/Index fund. HFs employ complex strategies that hedge out risks and highly quantitative methods. HFs are also not available to regular investors.

I'm not in the industry so that's all I can provide you with.

Oct 2, 2017

it's an industry where (if you run the fund), you have to keep a straight (and confidence inspiring) face to your investors. regardless of how afraid/uncertain/frustrated you are inside.

don't ask me how i know. it's not from personal experience or anything.

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Oct 9, 2017

Truthful they are not a great investment in a pure bull market. And there are way too many hedge funds now. A lot of the ways they made money have been competed away. HFT profits have fallen from 8 billion to 1 billion. They had a good strategy for a while, but then their ideas spread to everyone and their profits disapeared too. A lot of the LTCM trades that worked really well for a while are too well known now and can't offer massive returns.

Some of them do offer superior returns thru better risks management techniques. Bridgewater has had some good ideas like risks parity. I would be afraid their ideas are getting dated now though. Risks parity works great in a 35 year bond bull market and offered extra turn. And owning bonds do lower mark-to-market risks and observed volatility. They do add some value still by adding some leverage to a portfolio while spreading out risks.

Bond market offers some small edges for the big bond funds. They usually do outperform bond etf. They are not a hedge fund, but unlike a hedge fund they have 10-20 times the assets and can add enough value to take .5-1% fee.

Macro trading is essentially dead. Its dependent on two qualities - poor run central banks and an ability to jump in and out of the markets in futures. Yellen is a fantastic central banker and ECB and Japan have gotten better. China hasn't had a recession in 20 years or australia. For macro trading to work you need an economic cycle; those guys really aren't allowed to just say bull market or its easier to replicate them by just buying an etf.

Oct 11, 2017
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