What type of hedge funds do you see succeeding in the future?

There's been a lot of discussion about typical L/S being crowded out as more investors move towards passive investing. So, this brings the question - what strategies in the hedge fund world do you see succeeding in the future? I think we can all agree quants will be very successful, but what about macro, distressed, event-driven, emerging markets etc.?

Comments (26)

Best Response
Jul 25, 2017

As millennials transition into homeowners, we will see a growing demand for home privacy (afterall, millenials make up the largest group of early adopters for home automation and security technologies). That said, most in-demand neighbourhoods are rather dense, making it difficult for millennial home-owners to rely solely on technology to create privacy.

What many industry experts posit is that the domestic wall market (think high, metal walls/gates build around your house) is poised for rapid growth after year 2020. However, I'm in the camp that the more efficient and practical method to creating home privacy is to invest in, and grow, hedges around the perimeter of your homes. But it really depends on what camp you fall into.

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Jul 26, 2017

swing and a miss there champ

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Jul 26, 2017
exlurker:

As millennials transition into homeowners,

Not happening at any rate that would make markets sustainable. You'll get crashed by your own models.

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Jul 26, 2017

if I recall correctly macro and event typically do the least poorly during recessions, at least during 2008 I think on average those strategies didn't dip below -5% in annual performance whereas LSE and the rest were around -20 to -30% on average I think (HF people feel free to correct me). there's subsets on top of subsets on top of subsets in the HF industry and within the main strategies so really tough to give an answer. i also think systematic rather than discretionary performs less poor during downturns, mightve been a report i read on that.

have nothing against FOHFs but doubt they will gain in popularity (in general) if the focus stays on fees and stuff.

Jul 26, 2017

Macro is tough, reason they call it picking up nickels and dimes in front of a steam roller. I had a lot of respect for the guys who did this strategy at my old firm (that is until he got caught mismarking and caused the closure of the fund.......ass).

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Aug 10, 2017

Lol, not all of us are closet gamma sellers. Maybe if we were to ramp that up, YTD returns would be better... the steamroller is coming for us all, might as well pick up some fucking coins while we're still dancing

Jul 26, 2017

Pure, non concensus stuff. Talking esoteric RV, deeply directional macro/distressed trades.

Look for stuff that is idiosyncratic and not dependent on CB liquidity pouring into the markets.

Aug 10, 2017

Smart cookies who run aggressively directional, long time horizon macro/distressed/specsits books will always make money. Always.

Making money in govies or whatever is hard (impossible?) but comfy... idiosyncratic, ballsy bets are profitable but painful.

Jul 26, 2017

Exactly....Nothing more impressive than massive, high conviction trades. forget this sprinkling of 80 equity names across your book, that's not hedging.

great quote by Hugh Hendry (one of the greatest macro minds around).

"in April/May 2007 - Hendry said he was way out of the money before before generating 50% in October 2008.

"Now again, with the mastery and the art of macro, it is so complex that it's not just necessary that you're correct; it is the consequences of being correct. Now, we had a position whereby the other side - the investment banks - they were desperate. They were dying as this thing suddenly came to my strike levels. Blew through my strike levels, started to create this monster of P&L, which was murdered by a monster loss on the other side.

"And so daily we had pleadings. Please, please, please can we remove. So not only had we conceived of a great monster P&L trade the catalyst was adversity. Liquidity came to us, allowing us to monetize and close. That's macro. That's macro. "

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Jul 26, 2017

Generally, fundamental l/s funds haven't been doing too well. Though, activist investing still is booming and it should be that way. With growing passive investments and quants that rely less on fundamental analysis, corporate management and boards are bound to become disillusioned with their goal of being accountable to shareholders and best increasing shareholder value - i mean that's the whole point of a company, private or public. I think there's going to be a lot of opportunity when stock prices become misaligned with fundamentals and if everyone else is ignoring untapped potential for shareholder value creation.

Since trades are becoming less driven by fundamentals, Activist investors can bring to light the fundamental issues and align stock back with its fundamentals. Investing in a stock simply because it is "undervalued" (as is done in l/s funds) is difficult to ensure high returns because other stock market participants just don't evaluate the fundamentals the same way you do - being active (eg. going on CNBC, writing letter to shareholders) ensure there is a catalyst to your thesis becoming realized by the market.

What do you guys think about activist investing?

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Jul 26, 2017

There will be successful and unsuccessful funds in every strategy. L/S equity gets shat on because it has the lowest barriers to entry hence it is the strategy with the highest proportion of managers who don't deserve to be running money.

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Jul 26, 2017

I see Funds that delve into the Credit markets (be it distressed or value orientated) succeeding in the future. There is an equities culture in hollywood and the media that deters a lot of people from Credit funds in an employment sense. Given there is less indexing, less algo and quants movements, more active investors, there are more opportunities as the Credit markets since Debt Markets are twice as large as Equity markets globally. I think that is where there is an opportunity in the Hedge Fund World. If you think differently feel free to try and punch holes in what I said, I want to get more informed with my opinion on the matter.

RIP LEHMAN
RIP MONACOMONKEY
RIP THEACCOUNTING MAJOR

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Aug 10, 2017

Didn't realize value is still a feasible strat in credit, lol

Also, if the wolf of wall street is deterring you from working at a credit fund, you are not qualified for a HF job in the first place...

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Jul 26, 2017

Care to explain what strats in credit you can see succeeding and why? Also why would I let the wolf of wall street discourage me from something I find interesting?

RIP LEHMAN
RIP MONACOMONKEY
RIP THEACCOUNTING MAJOR

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Aug 15, 2017

what strats do you think will be good in credit going forward? i don't even know what "value" strat in credit even means, i have only ever heard of that in reference to equities.

do you mean relative value credit is not feasible? i'm so confused...

Jul 26, 2017

Bump

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Mar 29, 2018

.....

Jul 26, 2017

Bump

Aug 11, 2017

Strategy is just a strategy. A investment process to put on positions. Different strategies have different attributes like liquidity, scale-ability, and the current economic environment. How you adjust your risk and portfolio, especially when to go to cash makes a large difference to your YTD P&L.

Aug 12, 2017

Im interested to see how well passive holds up when the market turns. What will happen when people have questions about losses and how its going to be mitigated?

Hedge fund strategies and subsequent success are based on the ability to action their strategy. They tend to do better at mitigating risk and some are more comfortable dealing with uncertainty. Many will catch back up when the market turns.

There are certainly outliers but Im not sure why you think on balance quants will be successful- its a pretty sweeping statement and I doubt "we can all agree". If being a quant = success why would anyone do anything else?

"Not me. Im in my prime"

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Aug 13, 2017
Southern Gent:

If being a quant = success why would anyone do anything else?

Because becoming a quant is much more difficult.

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Aug 12, 2017

Quant is a broad term that covers a wide range of difficulty i.e. not every quant is a math phd with a background in non-linear constrained optimization algorithms. Regardless, the question was rhetorical and my point was that being a quant doesn't equal success.

"Not me. Im in my prime"