Hedge Fund Performance
I was looking at the returns of the largest hedge funds. Bridgewater, with $140B in AUM, has not even outperformed the S&P in its flagship Pure Alpha fund on an annualized basis since 2012. On top of that, the 2 and 20 fee structure would also be present. Here's the link with their sources for fund performance: https://assetbuilder.com/knowledge-center/articles/has-your-portfolio-beaten-the-worlds-most-famous-hedge-fund Then I looked at Millennium Capital Management, which returned 9.8% in 2019, and 25.8% in 2020, so lower than the S&P again after fees. I couldn't find data prior to 2019. This fund has nearly $50B in AUM. https://www.clearbrookglobal.com/citadel-millennium-d-e-shaw-post-20-plus-returns-in-20/ What am I missing here? Why is nearly $200B in capital committed to these funds that cannot even outperform the S&P in recent times?
Clearbrook
It's a paradox where the best performing funds eventually become too popular and large to outperform anymore. It is much harder to beat the market the larger you are because you have less options to invest in.
Feels ridiculous to me, just invest in the SP500 sans the worst 5 stocks. Wouldn’t take a rocket scientist to figure out stocks like IBM wouldn’t do great. Boom, you outperform.
“Sans the worst 5 stocks” 😂 might as well say just invest in Tesla. Hindsight 20/20
most hedge funds are not trying to beat the sp500. The institutions who are investing in them are looking for specific risk/reward profiles that may not match with a major index. For example, why do you think people buy treasury bonds?
This.
They are mostly coming from pension funds/401k. When you invest in target dated funds. Most companies don’t offer brokerageLink instead have only few fixed number of funds to invest. This is a way to siphon off money from those blind investors with large fees.
Recently had an interview at Millenium. MD told me the fund has had positive returns last 20 years. Even in 2008 they were net Zero. Not sure how accurate but that speaks about the compounding front.
indices perform better than HFs when the interest rates are low. But if we ever see the 15% rates of the 70s, hedge funds should do better.
It's hard to understand due to us being in a hyper bull market the past 10 years. But pure index based funds have a very specific (and fairly high) risk profile Hedge funds exist to reduce and better distribute that risk profile In times like this it seems dumb (as they make a lower return) but in more compressive markets they maintain positive profits.
That's because you're not looking at the secretive hedge funds isn't publicized. Alpha is hard to find, and those who are able to consistently find it and deliver outside returns is not something you can invest in. (Think Rentech)
Computer > humans. Look up performance of good quant funds like Rentec, Citadel. Bridgewaters and MLP are boomer hedge funds.
How are you at Citadel and not understand your own indsutry? Why do you think RT has a cap on funds? If they could compound endlessly they would have trillions by now.
Uhh which part of my comment are you responding to? Did I say they could compound endlessly?
If your goal is to beat the market, just simply buy a triple leveraged index fund. Now you beat the market 3X. Just google investing beta.
this works in a bull market but you will get obliterated in a bear market
Hedge funds underperform indices over time but their returns are more consistent.
Why does that matter though? Hedge funds usually have lock-up periods for the capital, so you anyways can't cash out and realize the consistent returns
No real investor is cashing out regularly to realize returns. It’s all about compounding