I personally agree that some people can generate true alpha, but IMO, picking winners and being able to invest is near impossible.
As far as rating by sharpe ratio, someone stated earlier these short vol strategies all have sharpe ratios over 1
PIMCO
and LTCM had a sharpe ration over 4 IIRC.
What drives someone like Phil Falcone to go all-in on Lightsquared...when he already made scrooge mcduck money on sub-prime? Whatever happened to the management of risks, not returns...
My question is do you think that Hedge Funds are losing the ability to invest in uncorrelated (to the equity market) assets, and therefore make their keep by generating excess alpha?
Quote:
Data compiled by AQR show the three-year rolling correlation of the HFRI Fund Weighted Composite index, a broad industry measure, with equity markets is at a near-record high of 0.93, comfortably above the highs seen before the financial crisis.
Other industry measures suggest correlations are a little lower, at around 0.84, although this is still well above historic norms.
The hedge fund industry’s correlation with equity markets rose sharply in the two years leading up to the financial crisis, and was widely blamed for the 20 per cent losses suffered in 2008, by far the sector’s worst ever year.
“Correlation was 0.6 when we started [in 1998],” said Mr Kabiller. “I think this is a yellow flag being signalled now. A lot of hedge fund managers are putting a lot of beta in their portfolios because it is what has worked.
“When performance is worse than the S&P [500] it puts so much pressure on [hedge] fund managers. They increase their market exposure, rather than being market neutral,” he added.
“I think there is more equity risk being put on,” said Fabian Thehos, an investment manager at the Wellcome Trust, which has $3.5bn of hedge fund investments. “Gross exposures are quite high at the moment, even for more conservative funds. I would argue that in an extreme crisis scenario this is where risk comes from.”
Per this
Thanks again for the informative info.