Long/Short Funds Tend to be more ‘Marketing of Beta’, not ‘Alpha’ Businesses – Jim Chanos

Long/Short Funds Tend to be more ‘Marketing of Beta’, not ‘Alpha’ Businesses – Jim Chanos by TheLongShortTrader

Straight from the Horse’s mouth (i.e. Jim Chanos):

I view macro and short selling as skill-based or alpha businesses, whereas equity long/short hedge funds tend to be more of a “marketing of beta” business. I am always amazed that investors will  pay 2 and 20 for a manager that is always net long.

I have been saying that for 20 years. It is interesting because I run an alpha-based business and I  am more sensitive to it than others. I sit on investment committees and I see it as an investor  who advises these funds. When I ask why a lot of hedge fund compensation is simply embedded market risk, I get very uncomfortable, squirming, dodgy answers. Or no answers at all.

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michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More


Look at 2013. It is crazy to see managers who were up 15 percent command huge checks, when  the S&P was up 30 percent. Particularly since they were not balanced completely. They were 90 percent long and 30  percent short, or something like that. Not much alpha has been created by hedge funds, and what was created has been taken by fees. This has been the case for a long time. In a way, short  sellers might still be one of your great bargains out there, at 1 and 20 percent of the alpha. That  is the closest I will get to a marketing pitch.

source: Steve Drobny,  The New House of Money

A good friend of mine agrees. In his own words, “people confuse brains with a bull market.”