Author Topic: VFIAX owners crush hedge fund performance. Hedge fund managers get rich anyway.  (Read 4063 times)

forummm

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http://www.nytimes.com/2015/05/05/business/dealbook/top-25-hedge-fund-managers-took-bad-14-all-the-way-to-the-bank.html

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The top 25 hedge fund managers reaped $11.62 billion in compensation in 2014

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That collective payday came even as hedge funds, once high-octane money makers, returned on average low-single digits. In comparison, the benchmark Standard & Poor’s 500-stock index posted a gain of 13.68 percent last year when reinvested dividends were included.

hodedofome

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Just a year's worth of data though, so comparison is incomplete. Most of the guys on the list have trounced market returns over the long term even while being uncorrelated with equity markets. And enough people are out there willing to pay 2 and 20 in hopes they'll keep doing it I guess.


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dungoofed

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The highest-earning managers have also emerged as leading political donors. For example, Mr. Griffin, whose $26 billion firm, Citadel, is based in Chicago, was the single largest backer for Rahm Emanuel’s successful second-term mayoral campaign, donating more than $1 million. (Last month, Citadel hired Ben S. Bernanke, the former Federal Reserve chairman, as a senior adviser.)

Rent seeking behaviour like this is the biggest drag on the US economy today. Get rid of it and indexing becomes a no-brainer.

forummm

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Just a year's worth of data though, so comparison is incomplete. Most of the guys on the list have trounced market returns over the long term even while being uncorrelated with equity markets. And enough people are out there willing to pay 2 and 20 in hopes they'll keep doing it I guess.


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I don't know. Looks pretty good for a 60/40 Vanguard-style portfolio over 10 years:

60/40: 6.6%
Hedge funds: 5.6%

http://www.nytimes.com/2015/05/09/business/dealbook/the-curious-case-of-negative-interest-rates.html?emc=edit_dlbkpm_20150508&nl=business&nlid=41001763

hodedofome

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The guys on the list aren't anything like the entire index of hedge funds. Here's some of their performance http://mebfaber.com/2015/05/04/performance-of-ira-sohn-presenters/


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DavidAnnArbor

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It's not clear to me that this is the actual performance of these hedge funds, or rather some composite of stocks that it is believed would be equivalent to the hedge funds, if the hedge funds merely held the stocks over this long period.

forummm

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It's not clear to me that this is the actual performance of these hedge funds, or rather some composite of stocks that it is believed would be equivalent to the hedge funds, if the hedge funds merely held the stocks over this long period.

Yeah. I'm too lazy to go find it, but another recent NYT article had study of hedge fund performance and the entire industry had zero return after fees for the period studied.

DavidAnnArbor

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hodedofome

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More articles addressing the inaccuracy of the NYT article

http://www.bloombergview.com/articles/2015-05-05/rich-hedge-fund-managers-are-still-rich
https://www.aqr.com/cliffs-perspective/an-annual-article-about-nothing

The article is using the increase in their holdings their own fund (basically their entire net worth for some of them) and calling that 'compensation.'

The link I posted before about the performance over the past 10-15 years was a strategy that just took the public quarterly filings of some of the funds mentioned in the article and bought/sold the same as they did, albeit with up to a 3 month lag. Some of the managers do more than just stocks, so their fund didn't necessarily perform the same. For most, their fund did better than just their stock holdings. The guys in the NYT article are the superstars of the hedge fund industry, and have all done 15-30%+ over the past 10-20 years. Just taking 1 year out of their entire track record tells you nothing.

Hedge Fund indexes are a joke. For one, you can't invest in a hedge fund index. Second, most hedge funds aren't trying to benchmark to the S&P 500 anyways. Their investors are institutional guys that aren't trying to make market returns. They are all pretty much trying to make consistent 8% returns with bond like volatility. And some hedge funds just employ 'crisis alpha' strategies that are trying to not lose money during bull markets, but try to make good returns during bear markets. To compare these types of funds to the S&P just doesn't make sense.

rmendpara

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Not sure why people enjoy comparing hedge/private equity/venture capital/debt/alternative funds to equity indices like the S&P.

The majority of investors in these investments are looking for returns which are less correlated to the major equity and bond indices... since those are easy to replicate, but also bring much more risk/volatility than they would like to have.

Of course the investment managers get paid extremely well. If it were easy, then the fees would start being eroded through competition. Of course, it is a free market, so investors should be free to put their money wherever they like.