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Old 09-09-2014, 01:55 PM   #151
hedgefundguy
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Re: Hedge Fund Manager welcomes your questions

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Originally Posted by dogmoon View Post
People who play that game and gamble other people's money could never be trusted to be honest about anything in life. Period.
I must admit I don't love being called a liar or untrustworthy. But such is the internet I suppose.
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Old 09-09-2014, 03:05 PM   #152
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Re: Hedge Fund Manager welcomes your questions

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I made up the "less than one percent of Hedge Fund people have had huge personal success investing before getting involved with Hedge Funds". I would bet my entire life against 1K that that is the case, though.

There are hardly any documented cases ever. It is far less than one percent, considering the number of people extracting money from the hedge fund asset gathering industry.

The biggest names are the biggest frauds of all time. Bill Ackman blew up Gotham Partners. He also blew one billion on Target calls...lol. Long Term Capital Management and John Merriwhether had the biggest collection of financial frauds as people ever assembled. VIctor Niederhoffer was great....lost it all multiple times. Cohen of SAC has insider trading scandals very close to him. I guess he is innocent of that. John Paulson, who engineered his personal trade against the mortgage market, made an ass of himself immediately after that, by maniacly gambling on anything that "might" move fast.

Very few people in history have had personal success investing (without leverage), and then gone into asset gathering. I'm sure there are some, but the number is so low that it isn't almost impossible to measure.

Even the mutual fund stars have been exposed as frauds. Bill Miller of Legg Mason might be the biggest fraud of them all. Remember Laurence Ariana and Hans Utch (spelling?). Those losers who were on every tv add for years. How about Janus Funds? Peter Lynch blew a ton of his personal money on Fannie Mae a few years ago. Went down with the ship, and bought more all the way till the end (just like Bill Miller). Google Bill Miller losses and see his horrific plays.
While you veer to overstatement and the hyperbolic, you are right that there are managers who have lost money for investors either with the purest of intentions or otherwise. I am not really trying to defend the entire industry or every manager (though I have been drawn in on this a bit, it's true...)

Just as there are "poker pros" who are really losers and truly talented poker pros who sometimes horribly misplay a hand, does not necessarily mean you should never stake a poker player. I believe players (and funds) worthy of investing in exist and a fair minded examination of the evidence would lead one to agree. A bit of a broken record here, but there it is again.
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Old 09-09-2014, 04:45 PM   #153
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Re: Hedge Fund Manager welcomes your questions

Just wanted to pop in to say this is the best thread in a while, thanks!
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Old 09-09-2014, 05:21 PM   #154
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Re: Hedge Fund Manager welcomes your questions

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.
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Old 09-09-2014, 06:46 PM   #155
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Re: Hedge Fund Manager welcomes your questions

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But what makes Millennium track record even more interesting is how they do it.

Their model is to hire an army of different risk takers, screened by the firm to those most likely to have edge. They give these risk takers an initial amount of capital. If they do well, they are given more capital. If they lose money they have capital removed or are asked to leave entirely. They are asked NOT to coordinate with each other in order to prevent group think from making the teams correlated to one another.

It is basically a genetic algorithm for determining whether edge exists or not!
Thank you for this, it alone is enough to make this thread worthwhile.

Do they use additional techniques to stop correlation? one of the problems with GAs is stopping too much correlation (and the genes don't talk to each other)
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Old 09-09-2014, 07:18 PM   #156
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Re: Hedge Fund Manager welcomes your questions

Summed across all human history, who would you say has had the better side of the lender/borrower relationship?
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Old 09-09-2014, 10:01 PM   #157
hedgefundguy
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Re: Hedge Fund Manager welcomes your questions

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Originally Posted by kimoser22 View Post
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?



Per this

Thanks again for the informative info.
Great questions...

Given how we pay our traders (a post I still have to get to), we in management have a strong incentive to make sure they are not either

A Sneaking in Beta
B Selling options

If you believe you can find true alpha (as we do), allowing traders to do these things would not be good business for us--investors would very quickly detect we are expensive beta providers (and not like it) and we would risk a gamblers ruin issue (as LTCM did).

Don't know enough on Falcone to answer.

I think most hedge funds know within a reasonable estimate what their beta is. I do think many do run at significant positive beta (shame on them) and AQR always stands ready to police this issue (and I agree they are right to do so).
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Old 09-09-2014, 10:05 PM   #158
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Re: Hedge Fund Manager welcomes your questions

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Originally Posted by Wamy Einehouse View Post
Summed across all human history, who would you say has had the better side of the lender/borrower relationship?
Not sure about all of human history, but in modern history lenders have (on average) earned credit spreads in excess of realized credit losses, so they have had the better side I suppose.
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Old 09-09-2014, 10:09 PM   #159
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Re: Hedge Fund Manager welcomes your questions

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Thank you for this, it alone is enough to make this thread worthwhile.

Do they use additional techniques to stop correlation? one of the problems with GAs is stopping too much correlation (and the genes don't talk to each other)
I think teams at Millennium are instructed not to speak to each other, much less coordinate.
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Old 09-09-2014, 10:21 PM   #160
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Re: Hedge Fund Manager welcomes your questions

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Just wanted to pop in to say this is the best thread in a while, thanks!
well thank you

Let me begin to explain the advantage of a multistrategy hedge fund. I will use a simple model (and try to build it out over time)

Let's say we can identify a trader who (through deep knowledge and research) is able to make 100 investment decisions a year with a 52/48 edge (right 52% of the time) with symmetric gains and losses.

If the trader bet $1 of each view, he/she would on average make $4 a year with a standard deviation of approx 5--a 0.8 information ratio.

If you can find 10 such traders (assuming uncorrelated), then you would expect to make $40 a year with a standard deviation of approx 16--a 2.5 information ratio.

So far, so good. This is basically the Millennium model.

More to come...
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Old 09-09-2014, 10:26 PM   #161
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Re: Hedge Fund Manager welcomes your questions

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I think teams at Millennium are instructed not to speak to each other, much less coordinate.
I think you misunderstood my question.

You start with a load of your risk-takers and reinforce the most successful strategies. This are now correlated to some extent because the most successful will be tend to be the ones who have exploited the better ideas (the available ideas are common to everyone) even if they have never communicated in any way. Keep doing the reinforcing and the correlation will grow.

I was wondering if this is addressed at all.
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Old 09-09-2014, 11:27 PM   #162
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Re: Hedge Fund Manager welcomes your questions

is it true minimum investments in hedge fund are 1m ?

Can i bet 100k in your fund

edit: whats your opinion on bitcoins and gold?
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Old 09-09-2014, 11:33 PM   #163
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Re: Hedge Fund Manager welcomes your questions

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Just wanted to pop in to say this is the best thread in a while, thanks!
Yeah this thread is awesome. It almost makes me wish I'd stuck with trying to get noticed by a hedge fund. Thanks for the thread.
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Old 09-10-2014, 01:47 AM   #164
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Re: Hedge Fund Manager welcomes your questions

As someone in finance who does not doubt your track record or other consistently successful funds, how do I figure out who is going to to be great in the future? I mean, isn't that the question everyone wants to know? What's your edge is the question? Everyone is smart and everyone has great analysts, so why give you money other than past performance?
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Old 09-10-2014, 02:43 AM   #165
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Re: Hedge Fund Manager welcomes your questions

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Originally Posted by chezlaw View Post
You start with a load of your risk-takers and reinforce the most successful strategies. This are now correlated to some extent because the most successful will be tend to be the ones who have exploited the better ideas (the available ideas are common to everyone) even if they have never communicated in any way. Keep doing the reinforcing and the correlation will grow.
"Most successful" with respect to hedge fund strategies doesn't necessarily mean "highest return" or "best sharpe ratio". Any fund that knows what it's doing will monitor the correlations of its strategies and evaluate their "success" accordingly. This is even more true for a fund like Millennium that specifically focuses on generating uncorrelated returns across its various teams. I don't doubt that their compensation structure is heavily based on rewarding returns with low (or negative) correlation, not only to the fund itself, but also to the appropriate indexes. With appropriate metrics for evaluating success, the phenomenon you described shouldn't happen.
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Old 09-10-2014, 04:04 AM   #166
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Re: Hedge Fund Manager welcomes your questions

What do you think of Bill Ackman?
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Old 09-10-2014, 07:00 AM   #167
hedgefundguy
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Re: Hedge Fund Manager welcomes your questions

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"Most successful" with respect to hedge fund strategies doesn't necessarily mean "highest return" or "best sharpe ratio". Any fund that knows what it's doing will monitor the correlations of its strategies and evaluate their "success" accordingly. This is even more true for a fund like Millennium that specifically focuses on generating uncorrelated returns across its various teams. I don't doubt that their compensation structure is heavily based on rewarding returns with low (or negative) correlation, not only to the fund itself, but also to the appropriate indexes. With appropriate metrics for evaluating success, the phenomenon you described shouldn't happen.
agreed...and your answer was much better than mine
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Old 09-10-2014, 07:15 AM   #168
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Re: Hedge Fund Manager welcomes your questions

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The idea that any hedge fund or any investor for that matter would have a quarterly "return" is asinine. People who play that game and gamble other people's money could never be trusted to be honest about anything in life. Period. Stock prices are unpredictable in the short term. In the long term, if the company does well the shareholders will do well.

Hedge Funds are basically gambling dens, where assets are gathered from other people who have created money mostly by adding value to society. Once these funds are gathered, Hedge Funds then look for gambles that can move the most, and that is why they pile into Krispy Kreme, Crocs, Netflix, and other trendy plays through the years.

Less than one percent of all people involved in hedge funds have a record of having huge success investing personal funds, having lived through ups and downs, and paid their living expenses knowing that if they made an investing mistake their would be real consequences.
http://www.managedfunds.org/industry...-fund-indices/

Generally I agree. Many might actually be frauds to split government retirement funds between hedge funds and state money managers. At least Dalio and Einhorn have gone out of their way to talk about economics. Insidermoney claims you can beat the market using hedge fund picks as idea farm. They do shake out or scare a lot of these boards. Who else like Loeb would go into Japan and try to shake things up at Sony. They are the only ones to have the money to go deep into the balance sheets. They are the activist investors that may be helping the overall market and small investors. hedgefundguy recommends the small guy generally not to invest in them.

As for question is the 2-20 fee structure fair? Why don't hedge funds offer different structures? Like .25%, but 50% if the 10 year average exceeds 15%. Thus if your 10 year average is 25%, your fee is 5.25%. (inflation adjusted). But the 2-20 seems you are just giving over 1/2 of your money away to the hedge funds.
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Old 09-10-2014, 01:26 PM   #169
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Re: Hedge Fund Manager welcomes your questions

Great thread.

FYI dogmoon has an interesting history of work, feel free to ignore him:

Choose between 500k and running over a child
Which NFL QB would you rather ****/marry/kill which was locked, so he created:
You filthy AIDS **** moderators
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Old 09-10-2014, 01:53 PM   #170
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Re: Hedge Fund Manager welcomes your questions

Not the OP but

Last I recall , Millennium's book is like a quarter low freq quant strats/stat arb, a third fixed income relative value, and the rest other. Their traders are getting fairly standard % of p&l, which ultimately comes out of the investors' pockets. Izzy's also taking 20 after that, so Millennium's much more expensive than your typical 2/20. Citadel has a similar setup.

2/20 is legacy fee structure and still moat common, but lots of guys doing variations (e.g. 1/20, 1/15, etc) and almost all new funds offer better pricing to seed/early investors. Most usually have highwater marks and annual crystallization, but I've seen non standard terms as well as only taking perf fees for returns above a reference benchmark. Bottom line is whether it's fair or not, fee teems are simply a matter of demand. If a manager can get 5/50 and attract and retain investor money, he will. There's been heavy pressure on fees in the past few years, but the best of the best will still be able to charge 2/20 or higher. Those who used to be stars and are flaming out will either cut fees, offer their book in a mutual fund, or lose assets.
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Old 09-10-2014, 04:59 PM   #171
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Re: Hedge Fund Manager welcomes your questions

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Not the OP but

Last I recall , Millennium's book is like a quarter low freq quant strats/stat arb, a third fixed income relative value, and the rest other. Their traders are getting fairly standard % of p&l, which ultimately comes out of the investors' pockets. Izzy's also taking 20 after that, so Millennium's much more expensive than your typical 2/20. Citadel has a similar setup.

2/20 is legacy fee structure and still moat common, but lots of guys doing variations (e.g. 1/20, 1/15, etc) and almost all new funds offer better pricing to seed/early investors. Most usually have highwater marks and annual crystallization, but I've seen non standard terms as well as only taking perf fees for returns above a reference benchmark. Bottom line is whether it's fair or not, fee teems are simply a matter of demand. If a manager can get 5/50 and attract and retain investor money, he will. There's been heavy pressure on fees in the past few years, but the best of the best will still be able to charge 2/20 or higher. Those who used to be stars and are flaming out will either cut fees, offer their book in a mutual fund, or lose assets.
agree with all of the above
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Old 09-10-2014, 05:54 PM   #172
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Re: Hedge Fund Manager welcomes your questions

So maybe its time to start a Milennium type 2+2 hedge fund using all these smart posters and run by HFG.
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Old 09-10-2014, 07:16 PM   #173
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Re: Hedge Fund Manager welcomes your questions

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So maybe its time to start a Milennium type 2+2 hedge fund using all these smart posters and run by HFG.
All you need is dogmoon
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Old 09-10-2014, 07:41 PM   #174
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Re: Hedge Fund Manager welcomes your questions

Thanks, great thread. dog moon is getting annoying.

No new question from me but I would like an answer on the liquid alts question. Good use of poker analogy throughout.
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Old 09-10-2014, 09:57 PM   #175
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Re: Hedge Fund Manager welcomes your questions

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What do you think of Bill Ackman?
Yes please! I think everyone thats keeps up with finance is interested in what his peers think hehehe.
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