On Hedge Fund Fees and Performance

On Hedge Fund Fees and Performance

I don’t think hedge funds are an optimal way to manage assets.  Here are some of my reasons:

  • The fees are too high.  Why pay 2% of assets, and give up 20% of the profits?
  • Hedge funds, aside from Commodity Trading Advisers and Global Macro funds, tend to be correlated, yield-seeking, and volatility-averse.  Why pay up for correlated performance?
  • The statistics behind hedge fund marketing suffer from backfill bias, survivor bias, and a few other biases.

Actual returns from hedge funds trail buy-and-hold returns by a significant margin.  Investors in hedge funds are poor timers of investment.  Though past results do not indicate future returns, investors act like that.  No one will add money to a losing fund, even if that is the point where it might start to do better.

Themes for the next decade: Cannabis, 5G, and EVs

CannabisA lot changes in 10 years, and many changes are expected by the time 2030 rolls around. Some key themes have already emerged, and we expect them to continue to impact investing decisions. At the recent Morningstar conference, several panelists joined a discussion about several major themes for the next decade, including cannabis, 5G and Read More


To me it seems that we are running into the limits of arbitrage.  Shorting is unnatural, and so are many derivatives.  How much do you have to pay up to get someone else to take the other side of the trade?

Only so much stock/bonds, etc., can be lent out and shorted with no additional cost.  Beyond that, shorts have to pay up, and that crimps their profits.

This is one big reason why I am happy to be a long-only value investor.  I only have to focus of businesses making money versus their current share price.  I don’t have to deal with the games surrounding shorting.  That simplifies my decision making considerably.

By David Merkel, CFA of Aleph Blog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.