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Old 09-05-2014, 03:42 PM   #76
hedgefundguy
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Re: Hedge Fund Manager welcomes your questions

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Originally Posted by dogmoon View Post
If not for the public bailing out Wall Street in 2008, how would your firm have done if the markets would have been left alone, and Wall Street and the big banks hadn't been bailed out? What percentage of cash did you have on hand to invest between spring of 2008 and late 2009 or so?

Without cheap access to money and leverage, can you articulate how you or anyone else at your fund has an actionable investing advantage on any large market cap investment?

How do Hedge Funds justify the clearing of the decks each January 1st? For example, most Hedge Funds choose investments that can move fast. If 25 Hedge Funds own Apple on the last day of December, then that is the price that they calculate their gains with, and they take their percentage off of that without ever having the sold equity (mark to market). If on January 1st APPLE's CEO was indicted, or some huge negative event occurred, APPLE would plunge, yet the Hedge Funds would have taken their cut without ever having sold the underlying equity.

Hedge Funds are designed to transfer the money from the investors to the Hedge Fund partners. It is total speculation for most, and that is why you never hear about them having Exxon. Exxon is going to move wildly. It is an almost automatic money making machine that no person in the last 80 years could have lost money on if they tried.

I am hardcore because I know that very few people in the hedge fund industry have EVER paid their bills and improved their lives purely from investing. Asset gathering, even if you have a good eye for investments, after having never had success over time with true investing (Bill Ackman, plus many others) is not real investing. If you aren't going to suffer a negative lifestyle adjustment if you make a huge mistake, and have never had to navigate through situations where that would be the case, then you are just gambling with other people's money.

The only Hedge Fund guy who I have read about who makes any sense to me is Ray Dalio. I respect James Simons, but nobody really knows what is in the soup there. Throw in George Soros. Stanley Druckenmiller gets a lot of credit, but he really blew up during the tech bubble, and he was strictly a maniacal gambler who was lucky to get out somewhat alive, and very lucky to get out alive in his other fund he was running at the time. Steven Cohen is obviously a fraud. Don't know enough about John Tudor Jones.

To me, it is almost impossible to justify being involved. First, you can't really articulate an edge, and second, there is no way to justify why the smartest minds should get into finance, as it is mainly money transferring, and nothing at all is created.

Good luck to you. I mean that. I am just hardcore when it comes to 99 percent of all investment talk. People were playing a losing game in 2008 and there should be more stories out there of people who had to get real jobs. As it was, the regular guy on the street had his money transferred to the gamblers on Wall Street, and that is a huge crime. If it had played out in a fair way, where people have to pay huge consequences for being fully invested at the top, when they knew that 500K for houses were being given to janitors with zero down and zero documentation of income, then most all of the gamblers of other people's money would have suffered a permanent loss of capital like they should have.

The DOW went from 14,000 to 6,500 in just over a year. It was going way lower than that without transferring money from the public to Wall Street. So, almost all in the hedge fund world were fully invested during that drop, and that drop would have been much worse without the public bailout. Very few were short. Paulson borrowed money and created his own personal security to short, but he ended up being a horrific investor in the years after that. Haven't heard many, if any, stories of funds who got short near 14,000. Most funds are long only now. In the old days they may have gone short, but now it is just gambler, and then pump up the stock in public.
The fund I manage was up in both 2008 and 2009 (fairly rare!)

Though not mentioned in the book, we had enough "tail hedges" in 2008 (aka "Big Short" type trades) to be quite profitable in 2008 and the payoffs on those "insurance policies" provided cash for us to invest at the lows (in many markets, not just equities) in 2009. And obviously, our firm received no bail out of any kind.

articulating actionable investing edge...not trying to dodge, but let me again argue by way of poker analogy. If the average person (or perhaps a reporter from a non-poker publication) asked Phil Galfond what is his edge in poker, he would likely give a rather blah answer ("I am good at math, I study my opponents closely, I try to improve all the time"). If another poker pro he liked asked him, his answer would likely be of more depth ("my ability to assess ranges better, my understanding of game theory optimality and my ability to play in an maximally exploitative way against a weaker opponent").

To really understand what gives Phil G an edge requires a decent amount of specialized poker knowledge and some serious study of his answer to assess credibility.

If you were approached by a poker player for a staking arrangement, you would want to do deep interviews to assess depth of knowledge. You would want to assess their character (do they tilt, do they drink too much?). You would also want to get an audited track record of their previous wins/losses (hard to get in poker land!)

Given all that, you might conclude that a staking deal is a good investment. And you might be right or wrong about that, but you would have a process that might lead you to more winners than losers.

We, at times, publish ex-ante our views on how an investment situation will work out and our logic of why we believe so. Mostly we send only to our investors but sometimes we do so more broadly for the public--though rare. Given our history on those ex-ante views and (much more importantly) our actual investment results some people have concluded that we are more likely winners than losers.

Not sure if I satisfactorily answered your question, but even if it may seem I am not, I am trying
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Old 09-05-2014, 05:09 PM   #77
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Re: Hedge Fund Manager welcomes your questions

1. how come you have information ratio of over 3? The only way I got this after transact. costs was with StatArb and it was purely from portfolio of uncorrelated returns between pairs inefficiencies.

2. What do you do to reduce positive excess kurtosis? (fat-tail) As far as I see tail risk protection is expensive as there is high demand for it these days... I'm always inclined to think that most HF simply pay to transfer risk to the tail, or modify the strategy in that way and don't worry to much.

3. Optimization portfolio techniques: ex. MVP -any value in them since you must estimate returns and when I do it there is decent variance based on the assumptions you use....

4. to be more general...initial parameter variation of your strategies? Most things I see are blindly over-optimized and rarely mention what happens if you modify your parameters f.e. +-50%...
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Old 09-05-2014, 06:53 PM   #78
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Re: Hedge Fund Manager welcomes your questions

How highly do you rate CFA/the value of earning the CFA designation?
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Old 09-05-2014, 08:31 PM   #79
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Re: Hedge Fund Manager welcomes your questions

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Can you give some information about entry level positions within a hedge fund?

-What types of college degrees are required (Bachelors in Bus Admin/Finance/ Risk Management?, or MBA required?)

-What certifications or skills are attractive to hiring managers?

-Where would one begin looking for entry level positions in a hedge fund?
maybe you missed these the first time but if you could answer it would be helpful. thanks
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Old 09-05-2014, 08:39 PM   #80
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Re: Hedge Fund Manager welcomes your questions

Just read the thread, lots of very interesting answers and thoughts.

I see my post is very similar to the other 2 that were just posted but its not often you get to ask someone that actually works at a hedge fund questions.

I'm currently in my last semester of undergrad at a California State University and just had a few career questions and a few Ackman opinion questions.

Assuming I'd like to end up at a hedge fund at some point in my career what would you think the best path to take is? Or some things I can start doing now to set me up for a chance to break into that industry later in life?

I'm not naive and realize that coming from a CSU I've possibly put myself in a very tough situation, I'll graduate with somewhere between 3.4-3.5GPA so nothing great. I'm co-president of our Student Managed Investment Fund so that would be my only real investing experience as of right now. My thoughts are hopefully getting into equity research and then try to make a transition to a HF from there. Any thought or recommendations? What type of jobs should I be looking to try and land right out of college that are realistic? Would trying to break into a top MBA be more valuable to someone like me than going the CFA route?

My last question is what are your personal views on Bill Ackman? What do you think about his HLF short and the way he went about it (do you think he will end up scooping a profit on this trade assuming he shorted it at roughly $45-$50)? Thoughts about his Allergan-Valeant deal?

Personally Ackman is my favorite investor so hopefully I'm not bias but I tend to agree with him on HLF. I don't know if I think they'll have the doomsday stock collapse that he's hoping for but I do think something has to be changed, whether its HLF specifically or MLM companies in general.

Thanks,
Josh
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Old 09-05-2014, 09:20 PM   #81
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Re: Hedge Fund Manager welcomes your questions

Your thoughts on Alibaba and two companies that have a piece. Yahoo and Soft bank.
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Old 09-05-2014, 10:32 PM   #82
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Re: Hedge Fund Manager welcomes your questions

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Originally Posted by hedgefundguy View Post
To really understand what gives Phil G an edge requires a decent amount of specialized poker knowledge and some serious study of his answer to assess credibility.

If you were approached by a poker player for a staking arrangement, you would want to do deep interviews to assess depth of knowledge. You would want to assess their character (do they tilt, do they drink too much?). You would also want to get an audited track record of their previous wins/losses (hard to get in poker land!)

Given all that, you might conclude that a staking deal is a good investment. And you might be right or wrong about that, but you would have a process that might lead you to more winners than losers.

We, at times, publish ex-ante our views on how an investment situation will work out and our logic of why we believe so. Mostly we send only to our investors but sometimes we do so more broadly for the public--though rare. Given our history on those ex-ante views and (much more importantly) our actual investment results some people have concluded that we are more likely winners than losers.
Doesn't this mean that we therefore shouldn't just snap up the opportunity to stake PG. You're analogy here seem right but if we cant avoid paying 2 to some losers it doesn't look so good to pay 2 + 20 to the winners.

It also seems so much more complex than poker (which is tough enough). Do you think many actual investors had the expertise required to reasonably evaluate the differences between hedge funds?
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Old 09-06-2014, 06:41 AM   #83
hedgefundguy
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Re: Hedge Fund Manager welcomes your questions

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How highly do you rate CFA/the value of earning the CFA designation?
I prefer the CAIA
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Old 09-06-2014, 06:46 AM   #84
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Re: Hedge Fund Manager welcomes your questions

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Doesn't this mean that we therefore shouldn't just snap up the opportunity to stake PG. You're analogy here seem right but if we cant avoid paying 2 to some losers it doesn't look so good to pay 2 + 20 to the winners.

It also seems so much more complex than poker (which is tough enough). Do you think many actual investors had the expertise required to reasonably evaluate the differences between hedge funds?
I do believe that winning hedge funds exist (and that a reasonable person would agree to this upon a fair assessment of the evidence)

I believe that due diligence can greatly increase your odds of picking winners vs losers

I agree this is likely *harder* than picking good poker players (which likely is not that easy either)

But there are investors (fund of funds, etc) with the trained staff to do this that I believe have demonstrated clear edge.

I would be interested in hearing from David or others on if they have a history of staking poker players and what has been their p/l history on doing so.
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Old 09-06-2014, 06:47 AM   #85
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Re: Hedge Fund Manager welcomes your questions

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Your thoughts on Alibaba and two companies that have a piece. Yahoo and Soft bank.
I am a fan of Softbank--sum of parts argument
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Old 09-06-2014, 07:12 AM   #86
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Re: Hedge Fund Manager welcomes your questions

What are the most common ethical decisions you run into running a hedge fund?
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Old 09-06-2014, 08:32 AM   #87
hedgefundguy
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Re: Hedge Fund Manager welcomes your questions

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Just read the thread, lots of very interesting answers and thoughts.

I see my post is very similar to the other 2 that were just posted but its not often you get to ask someone that actually works at a hedge fund questions.

I'm currently in my last semester of undergrad at a California State University and just had a few career questions and a few Ackman opinion questions.

Assuming I'd like to end up at a hedge fund at some point in my career what would you think the best path to take is? Or some things I can start doing now to set me up for a chance to break into that industry later in life?

I'm not naive and realize that coming from a CSU I've possibly put myself in a very tough situation, I'll graduate with somewhere between 3.4-3.5GPA so nothing great. I'm co-president of our Student Managed Investment Fund so that would be my only real investing experience as of right now. My thoughts are hopefully getting into equity research and then try to make a transition to a HF from there. Any thought or recommendations? What type of jobs should I be looking to try and land right out of college that are realistic? Would trying to break into a top MBA be more valuable to someone like me than going the CFA route?

My last question is what are your personal views on Bill Ackman? What do you think about his HLF short and the way he went about it (do you think he will end up scooping a profit on this trade assuming he shorted it at roughly $45-$50)? Thoughts about his Allergan-Valeant deal?

Personally Ackman is my favorite investor so hopefully I'm not bias but I tend to agree with him on HLF. I don't know if I think they'll have the doomsday stock collapse that he's hoping for but I do think something has to be changed, whether its HLF specifically or MLM companies in general.

Thanks,
Josh
Advice on getting a hedge fund job (even if you don't have the "perfect" resume)--

Show passion for investing--
Start a blog
Publish a portfolio and logical reasons for each position
compete in the Fortress Challenge on Upgrade Capital website
uncover a potential fraud or market moving piece of information on a company
if you demonstrate brains and passion (and yes, get a bit lucky) people will notice you.
read (and understand) every book about investing and hedge funds (more valuable than MBA or CFA to me)
If I met you, I would know in 5 minutes if I was interested in hiring you based on your depth of knowledge...resume (school) matters much less to me.
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Old 09-06-2014, 08:45 AM   #88
hedgefundguy
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Re: Hedge Fund Manager welcomes your questions

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What are the top 5 hedge funds in the world IYO?
Renaissance is number 1 of all time (reminds me of the Foundation in Asimov's books) And no, I don't work there

Less clear after that. Might be dodging this one a bit as I fear losing anonymity and some point and don't want to burn bridges.
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Old 09-06-2014, 11:22 AM   #89
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Re: Hedge Fund Manager welcomes your questions

This thread is turning into game trying to find out who you are, it is really hard to find free past results of hedge funds, but I was surprise at the number that were up in 2008.

Last edited by steelhouse; 09-06-2014 at 11:33 AM.
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Old 09-06-2014, 11:47 AM   #90
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Re: Hedge Fund Manager welcomes your questions

I don't know why people would want to out his name. He'll probably be more open if he remains anonymous.
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Old 09-06-2014, 12:48 PM   #91
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Re: Hedge Fund Manager welcomes your questions

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Which concepts of the Hedge Fund world need to find their way to the poker staking market in your opinion? On the flip side, which concepts in poker staking would never be allowed in a professional financial setting?
Bump :-)
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Old 09-06-2014, 01:39 PM   #92
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Re: Hedge Fund Manager welcomes your questions

I'm about 90% sure I know who the OP is but I think its better he stay anonymous.

1. Can you talk a little bit about the investment process at your fund. Where do ideas come from, how do you determine portfolio sizing, how do decisions ultimately get made, etc.

2. What resources have had the biggest influence on shaping your investment philosophy (books, mentors, experiences, etc)?

3. Along the same lines, any book recommendations?
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Old 09-06-2014, 01:52 PM   #93
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Re: Hedge Fund Manager welcomes your questions

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I prefer the CAIA
Why? This seems to be a pretty unique position, so I'd love to hear more here.

When I did the CAIA exams back in 2010-2011, they were aimed at helping money managers make good decisions picking alternative investments for that sector of their portfolio. The readings were entertaining, but the exams were pretty easy. I have found that passing them has not helped on my resume.

re: 25/50 NL
Did you ever beat any level over a large sum of hands? Also, did you ever get tutoring from an online pro? If not, why not?

re: managed accounts
Would love to hear more here. I've heard that some of the big pension funds essentially now have managed accounts. It seems like something I'd insist on if I were a large pension fund, particularly for newer funds. I understand if this isn't something you want to talk about or just haven't thought about much because it isn't applicable to your firm.

What questions are we not asking that you'd like us to ask? I'm not sure how much this thread has helped your book.
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Old 09-06-2014, 02:14 PM   #94
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Re: Hedge Fund Manager welcomes your questions

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I would be interested in hearing from David or others on if they have a history of staking poker players and what has been their p/l history on doing so.
Since big games are so much tougher to beat than small games it is much harder in the poker world than in the investing world to find someone who both wants to be staked to play bigger than he is now, and deserves to be. Tournaments are perhaps an exception.
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Old 09-06-2014, 02:41 PM   #95
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Re: Hedge Fund Manager welcomes your questions

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Originally Posted by BCI23 View Post
I'm about 90% sure I know who the OP is but I think its better he stay anonymous.
I am asking all posters to not even venture a guess publicly. If you want to PM me with that guess go ahead. I won't reply. but if he ever divulges who he is, I'll credit you with your perspicacity
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Old 09-06-2014, 03:06 PM   #96
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Re: Hedge Fund Manager welcomes your questions

You mentioned depth of knowledge. Can you list 5 books you'd recommend (doesn't necessarily have to be finance related)?
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Old 09-06-2014, 03:09 PM   #97
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Re: hedge fund fees

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Well done Pete! Spot on.

If Phil G would offer you this deal, you wouldn't (if you were smart) argue about the fee arrangement but quickly agree before someone else does!

The ratio of win rate to standard deviation is known as the "information ratio" or "Sharpe ratio"--in this case, 3. The fund I manage has had a realized information ratio of over 3 for over 6 years now. For that to be from luck, the odds would be 741^6. Although as Taleb says, that alone can never be proof that we aren't just good coin flippers, it starts to seem less likely

Also, the track record of Millennium Management (not where I work) is even more impressive and unique. More on this in some future post. It is close to the "hedge fund that basically never loses", and how it does so is incredibly revealing about markets.

It is possible that the market was beatable for a time (like a poker table being beatable) and it is no longer so. Perhaps the bad players all left the game. Therefore, our realized results may not be the best predictor (in fact, they likely are not) of our expected future information ratio.

"Also, the track record of Millennium Management (not where I work) is even more impressive and unique. More on this in some future post. It is close to the "hedge fund that basically never loses", and how it does so is incredibly revealing about markets."

Can you explain more about this?

Also, how does one start out thinking about and testing different investment thesis'?
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Old 09-06-2014, 06:14 PM   #98
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Re: Hedge Fund Manager welcomes your questions

Just a few questions regarding your book.


-Are you going to talk about Hedge funds as whole or explain why some are
good, some are bad and some are to be judged?

-How things have improved in recent years , what one should know before choosing one. ( Certainly would trust more reading someone who is critical towards HF and suggesting ways forward.)

-If it wasn't your company, what controls would you require the HF you put on your money to have?

-How would you create this extra security or trust for investors?

-How can I trust someone saying. I put 80% of my money and invest in in our fund. If I was customer and you would see difficult times ahead, guys working for the fund starting to pull their money out while keeping investors engaged on stock/... markets wouldn't feel right. Could this ever be audited /if rule was established?
Could you say we have min of ...% invested and our money is tied to overall result.

-If the shop would go bust it would be great to have them money locked say 10% of the value(Im drunk an being optimistic) All the other money would be lost but this 10% would be given back to investors. Bad investments would cost company more.

-Why do you charge high fees. Are HF as whole beating the market? I would feel like that but then again I dont know how much normal year to year operations are costing.

I would like to read a critical book seing both sides, suggesting ways forward and ....and so on
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Old 09-06-2014, 07:46 PM   #99
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Re: Hedge Fund Manager welcomes your questions

It's a shame, but OP has to be very careful about what he says (pretty sure he realizes this based upon his selective responses). For better or worse, hedge funds are being scrutinized more than ever before, and if his compliance dept is aware of this thread, they are certainly monitoring and/or filtering all responses. Not to mention, he wouldn't want to upset any clients or eventually be outed and have his thoughts sensationalized on ZH or elsewhere.

Regardless, I'm hopeful this thread yields some gems. Although I'm now an HFT, it wasn't long ago that I worked for an allocator (who has a strong relationship with the OP's firm). Def curious to see where this thread goes. Happy to contribute but don't want to threadjack, may start my own in the future.
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Old 09-06-2014, 10:58 PM   #100
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Re: Hedge Fund Manager welcomes your questions

What percentage of hedge funds beat the market net fees?

Do you believe this is higher or lower than the percentage academia will tell you?

I completely respect hedge funds. I also think there is more dumb money investors in them compared to most of types of investing. Also curious as to your thoughts on that.
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