Comments on: Behind-the-scenes New Yorker article on hedge funds reveals they aren’t so sexy

By: Khyron

Khyron — Mon, 10 Nov 2008 06:58:08 +0000

Also be aware that Harry Kat is well known for attempting to create (or creating) hedge fund replication investments, essentially trying to replicate the performance of certain hedge fund indices (a bit absurd already) by reverse engineering them, thus harvesting alternative betas at a much lower cost.

Much of his non-academic living is made by disparaging the hedge fund industry, which admittedly, is mostly worth disparaging. However, Kat is trying to sell something too, just something different. (And not so different, really, since he’s attempting to replicate the performance of the better players in the HF universe. Thus, if all HFs had absolutely no purpose and generated no alpha, he’d be out of work too.)

By: vandenbowen.co.uk

vandenbowen.co.uk — Sun, 05 Oct 2008 15:27:20 +0000

[...] 2. Hedge Fund Surprise? This is like a tuna surprise, only worse: Hedge Funds Are Bracing for Investors to Cash Out. Many people haven’t heard about hedge funds’ redemption clauses, which basically means that fancy investors (e.g., universities, pension funds, and really wealthy people) will be able to withdraw their money today (Tuesday, 9/29/08). If that happens, nobody really knows what the repercussions could be…but they would probably be Very Bad. I’ve previously written about why hedge funds are overrated for investors. [...]

By: Mark Holden

Mark Holden — Tue, 24 Jul 2007 23:56:31 +0000

This should come as no surprise to anyone who’s read anything by John Bogle (founder of Vanguard) on investing. The above thesis is pretty much his axe, and he grinds it relentlessly — for example, in Common Sense on Mutual Funds. Clearly it is possible for individual investors/funds to beat the market; some even manage to do so intentionally and repeatedly (Warren Buffet comes to mind). But the vast majority of funds don’t, and it’s really hard to pick out the ones that will in advance. Actually, it seems surprising to me that Bogle isn’t mentioned, as the studies’ claims almost could be lifted straight from his books, and he said it first. But hey, as long as the message is being spread…

By: Andrew

Andrew — Thu, 19 Jul 2007 13:40:29 +0000

One of the first comments on this post mentioned that 35.6% return for Renaissance Technologies.
Remember, though, that any broad investment universe is going to have that rarified group of top performers. Since the majority of the historically best hedge funds (that are still in operation) are closed to new investors, the trick becomes trying to find another Renaissance type of fund. This is the hard part, and this is the reason why looking for a hedge fund that is still accepting new investors is no guarantee for any risk-adjusted alpha whatsoever.

By: Rogers Place

Rogers Place — Mon, 16 Jul 2007 23:01:50 +0000

Most times these lower looking yields will earn you more in the end. With lower risk does generally come lower returns. But compared to what.? No one can preidct the future, only show you past performances of a particular fund(higher yielding in this case). With the potential for a higher return comes higher risk of loss. So 25 years from now the higher yielding fund may actually be worth less, it took several large losses in years 13, 17, and 25. Where as your lower yielding hedge fund gained every year, not alot but enough to significantly outway the higher yield in the end. If you don’t have alot of money to risk losing, play it safe and invest in the lower return.

Just as a note – when you recieve your fund statement and it shows loss of $435.19 dollars, where did that money get lost????? Someone has it in their pocket.

By: Jenna

Jenna — Mon, 16 Jul 2007 19:06:19 +0000

One thing that readers must realize is that while yes, it is true that while many hedge funds do not beat the market, the risk associated with the returns is often lower. Often the volatility of hedge funds is significantly lower that the volatility of the market – and, often a large portion of reported volatility has to do with fat tails on the right side of the distribution curve proving the ability to protect capital on the downside. Having lower risk allows portfolio managers to allocate risk to other asset classes. With the market currently in such a bull run, yes, it is hard to beat the market. Reporters and the media will not stop giving hedge funds grief until the market is down -15% and your hedge fund managers are delivering you +5-8%, then they won’t be griping so much.

Also, one thing to note as the article mentions things about high fees – unlike mutual funds – hedge fund managers are paid to deliver absolute returns which means if they are negative for the year, the portfolio managers don’t get paid their year end bonus. This is UNLIKE mutual funds where fund managers are only required to beat benchmarks – so if the market is down -10%, your mutual fund returns -8%, the mutual fund manager still gets paid a huge bonus.

Investors big or small must always pay attention to where the risk in their portfolios are coming from. Most mutual funds have much higher volatility than the majority of hedge funds.

By: Ramit Sethi

Ramit Sethi — Mon, 16 Jul 2007 16:02:23 +0000

Oops, added the link above.

By: Road To Harvard

Road To Harvard — Mon, 16 Jul 2007 15:45:53 +0000

Ramit, I was wondering how you paid for your undergraduate education? I have been browsing the site and cannot find any article that addresses this. If you could point me in the right direction it would be appreciated.

By: Will

Will — Mon, 16 Jul 2007 15:22:16 +0000

Interesting, but I wouldn’t consider the New Yorker the last word on financial reporting. Hedge funds are definitely making money for savvy, rich investors, but these same investors are people who can deal with downsides. Likely, these are not people who read your blog since they don’t need to be taught what they are are (rich!). That’s not me yet and as such, I will continue to be a Ramit devotee.

Example: Since 1988, the Renaissance Technologies Corp.’s Medallion Fund has returned 35.6%. Not too shabby, imho.

By: pdq

pdq — Mon, 16 Jul 2007 14:07:53 +0000

Link to Cassidy’s article?