Category: Hedge Funds
A hedge fund is an investment fund that pools capital from institutional investors or accredited investors and invests in a variety of assets, often with risk-management techniques and complex portfolio construction.
They are administered by a professional investment management firm, and usually structured as a limited liability company, limited partnership, or other similar vehicle.
Hedge funds are different from mutual funds, as their use of leverage is not capped by requlators. They are also distinct from private equity funds, as most hedge funds invest in relatively liquid assets.
| |Hedge funds styles, strategies, and firms evolve over time. The behavior of a hedge fund today is not the same as yesterday. These behavior changes are not because a manager has changed his style but because the environment, the tools, the regulations, and the ideas surrounding finance are different. … Read more Evolution and Adaption: Trend-Followers are Constantly Changing
| |Alpha generation will fall when it is measured correctly through an appropriate benchmark. Alpha shrinkage over the last ten years is a measurement problem. Returns for hedge funds are a combination of the underlying risk premia styles employed and the skill of the manager. … Read more Blending Risk Premia and Generating Craftsman Alpha
| |A growing investment management theme over the last few years has been the incredible shrinking alpha. As investors gain more information on risk premia, there seems to be less alpha produced by managers. In reality, alpha production has likely not changed, but our measure of alpha has gotten more sophisticated so the skill associated with any manager seems to have declined or at least changed over the last decade. We can now tie what was previously thought of as alpha to specific risk factors. If alpha is tied to systematic risk factors, then it really is not alpha … Read more Alpha Production – As We Get Better at Beta Measurement, Alpha Will Decline
| |“My mom always told me it’s okay to make mistakes, but she never worked at a hedge fund.” ― Turney Duff, The Buy Side: A Wall Street Trader’s Tale of Spectacular Excess Decision-making will be filled with mistakes and failure. It is part of the process when making bets in an uncertain environment. No one is 100% certain and at your best, your track record will match your estimates for success. The objective of good investment decision-making is to get the process right, so failure or lack of success is not from lack of skill or outright ignorance. Nevertheless, even if the odds are in your favor, you will not get every decision right … Read more Hedge Funds – Mistakes, Pain, Competition, and Perhaps Not Enough Risk-Taking
| |You would not think some hedge funds would be down so significantly for September returns given that the major stock index (SPX) moved higher, but upheaval in small cap, value and growth harmed the average equity hedge fund. There were some positive gains in relative value managers, but it was a generally a tough month for those trying to actively find returns … Read more Hedge Fund Styles Underperform – More Risk-Taking Will Be Required To Make Positive Returns