Economics, Videos

Most Hedge Funds are really Just Glorified Money Managers (Video)

Pension Funds oftentimes are just duplicating existing market strategies and exposure by allocating capital to Hedge Funds while paying higher costs for underperforming a simple SPY Long position the last 7 years.

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0:00readings this is econ matters it is May 15 2016 going to talk a little bit about
0:06hedge funds Bloomberg has this article hedge funds urged benchmarks before
0:12charging fees the Teachers Retirement System of Texas in life are among those
0:19that called on managers to produce out for gains above market benchmarks before
0:24charging incentive fees in a range of investing terms as funds trail the
0:32standard the S&P 500 index for the sixth straight year some clients claim that
0:38managers still quite little information about their holdings and type the
0:41investors cashed lagging behind benchmarks toppers Retirement System
0:47said in September it would divest its four billion for hedge funds after
0:50official the program could be expanded to justify the cost to the ideas that
0:55funds were ultimately supposed to be more different than just straight up
1:02money managers because anybody that was just really long oriented in the market
1:11you know just buying stocks etc calpers has a huge staff a bunch of these
1:15pension funds and Chicago generate huge staff they can just buy a stock they can
1:20invest in the index
1:21why are they paying 20 and 22 some hedge fund that basically doing the same damn
1:26thing and so a lot of these hedge funds really aren’t doing quote-unquote
1:31alternative strategist the alternate strategy is something to provide a hedge
1:36from your regular long holdings that the pension fund hold that they can do
1:42in some sense to their portfolio so for the 2015 top-performing fund which one
1:54do you know more in a set budget these right long-short equity long-short
2:00equity equity many stretchy shirt equity long-short strategy equity macro long
2:07short equity quantitative futures this is probably the only guy here that doing
2:13something that and I guess theoretically if you couldn’t define the old days
2:20the entire market was just basically a long and that was all funds did in
2:27mutual funds in than anybody that has any shorter equity exposure period I
2:33guess that to hedge fund what i’m saying is the new definition needs to be
2:38changed because mutual funds that defines pension plans they can all go
2:45short certain equities they don’t need to pay 20 and 24 that somebody have
2:54better dinner fire weather long does it take to 24 that somebody that what you
3:02paid to them 24 somebody is doing alternative strategies just buying or
3:07selling traditional assets long or short strategies within the market
3:14and this is probably the only person that has any resemblance to an
3:19alternative strategy to a normal pension funds tragic that they can ploy is doing
3:24here so top-performing funds between 250 million and a billion in assets again
3:30macro longshore long short short short macro neutral all these are along sure
3:36basically stock holdings 10:34 basically the first quarter and smokers 7000 some
3:55Yum Brands Dow Chemical bill Ackman who has concentrated strategy Canadian
4:04Pacific Railway value on GMA Apple’s
4:15sandy has more diversified approach sped up names match group Superman and make
4:26advisers to view media MGM Resorts Microsoft
4:35resource America time water helps Windies Tiffany Howard Marks from
4:49Oaktree Capital Management
4:59blackstone BHP Billiton seen this individual is Dynegy said individuals
5:19least trying to do more than just the typical names but destructive side is
5:25how many hedge fund road Apple up and we’re all invested in Apple for the last
5:31five years and it’s just hilarious because you don’t need to pay anybody to
5:37mom pops could figure out to invest in Apple right to pay anybody to 120 that’s
5:42no market head coach Steve Berkowitz serious whole beans Berkshire Hathaway
5:52Bank of America David Tepper one of the best and I would call these all these
6:03guys money matters not hedge funds and money managers naturally the new
6:07definition sure on the edges in may do some pretty interesting strategies with
6:14some of the way they set a part of a portion of their sons or set up certain
6:21trades that getting to do this but it’s such a small portion of their overall
6:27proposed that it’s not know where I mean p.m. so he’s one of the best money
6:33managers in the street but still is a money manager general motors Apple
6:38Pfizer hour
6:41report back the Red Eagle Materials you know energy yield again
6:54Bassey actually is probably in the past years but last couple years but this
7:01year he’s probably acting like a hedge fund is very little is portfolio and
7:06doctor he has a billion trying to do some kind of weak Chinese currency sort
7:18of you probably in some sense catch to your overall pension holdings
7:27Topcon and hedge funds the shah Renaissance technology arcane Asset
7:34Management quantitative Management Associates these guys are actually doing
7:41strategies that are ahead of the pension funds normally do in their portfolio and
7:50so this is a different strategy and some sense then justify pain to employing
7:58so mister funds that are you working on artificial intelligence Bridgewater
8:04associates Renaissance technology developed capital list actually
8:16interesting but the list of investment banks these guys a list here are
8:21actually through their ICC so fixed income currency and commodities are
8:28actually doing strategies that could be considered market hedges the problem is
8:35right is the regulatory environment is very pervasive right now and their
8:44businesses going down tremendously so they’re being forced out of this
8:48business lock stock and barrel so and attention that they actually do practice
8:56alternative market strategies than just long or short and so you know the
9:04phenomenon that has been occurring is people can read the numbers and they can
9:10see damn you know I could just buy the S&P 500 and most of these hedge fund why
9:15my pain to in 20 and so what hence the term of what you should pay June 24 our
9:23strategies are online and traditional asset classes
9:29just long or short equities there are all kinds of strategies hundreds of
9:34strategies as a very vast spectrum where their inherent edges in the market and
9:43their proprietary advantages that have been identified and black boxes and
9:49that’s what you pay 20 and 24 and those are truly alternative investment than
9:54what the pensions funds can do on their own they have huge budgets huge staff
9:59they could do all this and large expertise they can do basically they can
10:04sure as hell by atler sell Apple on their own they don’t need to pay 225 but
10:09somebody has identified for instance here’s a couple of just traditional
10:15market edged strategies that a bunch of the ETS we’re very poorly constructed
10:20and you can study and look at the rudiments of their construction and
10:28realized they were going to lose value regardless of market direction couple
10:32that with the fact that they came to market looking to take advantage of the
10:36ETF phenomenon in the third
10:40driver is that they often came in hot market so that when the housing market’s
10:45hot where certain biotechs a hot or something and a lot of them were just
10:51even poorer version so you know PNC versions of these pts and so when they
10:57come out strategy with you came in and identified which ones fit into this
11:01model and shorted him and you made a ton of money because there was inherent edge
11:06that was built in to their construction that’s an actual strategy right that
11:13isn’t long or short equity and is an actual hitch another strategy right
11:18short IPOs a lot of these IPOs it came out in 2015 the reason you’re so what
11:24are you looking forward looking for a catalyst right the markets all-time
11:29highs that’s a reasonable these firms are coming to market they’re trying to