ValueWalk’s Mark Melin is quoted at length in this piece by of Vice Media. Note: I do not mean this to attack the writer but there was an angle the writer had in mind and the interview was edited but I think he did a good job. In short, I think Mark is saying in his opinion hedge funds really should be hedging more and if not they have no right to call themselves hedge funds. Additionally, I believe he is trying to point out that not only are many funds not hedge funds but also underperforming which is the worst of two worlds since they are not providing protection in down market nor creating long term alpha.
Anyway, below is a brief excerpt from Vice’s piece on hedge funds.
This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery
The first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More
So how did things go wrong for these guys?
The quote that best sums it up is, “Hedge funds aren’t hedging.” Hedge funds were designed to be a counterbalance to the stock market. But what’s happened recently is that hedge funds have been exposed as nothing more than long exposure to the stock market. In my opinion, 2008 was a disaster for a lot of hedge funds, [because] given the volatility of the market, that would [seem to] be a valid reason to invest in them. But the majority have failed to be independent of the stock market, which was their original purpose. Now there are different groups and pockets where there’s truly non-correlated performance—I expect those strategies to do much better in this environment. But strategies that are long only are going to have increased difficulty going forward.
But “hedge” is in the name. How is it still a hedge fund if there’s no hedging?
Bingo. Hedge funds are there because they provide a counterbalance. The Wall Street banks have been promoting ones that don’t hedge, and that’s wrong. There are some incredibly smart people who work at banks, but in general, they are promoting strategies that are long only. I know it’s touchy picking on the banks, but I think it’s appropriate.
Full article here