So called “Hedge Funds” who employ no real hedge fund strategies for the majority of their allotted fund capital are really just marketing themselves as Alpha Players to charge the 2 and 20, when based upon performance and trading strategies deserve just the 1.5 to 2% money managing fee of standard money managers.
0:00good morning this is econ matters it is jun 2015 2016 so next week is the end of
0:07the second quarter after some initial weakness and markets to start the week
0:11expects buying to sort of close out the second quarter
0:16we’ll see if that comes to fruition
0:19so he knew edge has this top one under the hedge funds corded 2016 according to
0:25Berens household hedge fund name such as bill ackman’s pershing square Daniel
0:32Loeb’s Third Point Capital and David on horns greenlight capital nowhere to be
0:35found in the Barents 2016 list of best and attachments
0:41that’s just the muses me a lot so first of all
0:46pershing square Third Point Capital and greenlight capital or not
0:50hedge funds I know they market themselves so it’s sort of
0:55yeah we provide alpha so the sort of market themselves for the two and twenty
1:00but they’re not hedge funds they don’t usually they may have a small portion
1:07that
1:09what I call employee you know your standard hedge fund type strategies
1:16these are money management firms but that being said his barons notes even a
1:24wall street the name of barons penta number one hedge fund this year is one
1:28that many serious investors would recognize parametric management a small
1:33hong kong-based firm posted a three-year compound annualized return in nearly
1:37thirty percent by the end of 2015 about double the return of the S&P 500 index
1:43remarkable gain forty-five percent in 2015 is occasionally fight market help
1:49the stock focus clients at parametric global master finally kicked its butt
1:53from its previous ranking appropriate for The Times parametric ignores
1:58fundamental analysis entirely and instead specialize in stat arbitrage
2:02strategy that relies on quantitative analysis to identify instantaneously
2:07miss price asset prices anywhere in the world
2:10I think Jim Simmons flagship Renaissance medallion fund these market neutral
2:15funds feed on the kind of instability and dispersion prices that overtook
2:19markets for much of 2015 the US Europe Europe and especially emerging markets
2:24some more details on this year’s where the hedge fund was found in 2009 by
2:30Zhang Li you
2:31after earning a PhD in finance from the university of illinois at
2:35urbana-champaign work briefly a hedge fund deephaven capital
2:40he then joined nomura securities international its proprietary equity
2:44trading unit
2:45eventually became a managing director and senior portfolio manager at Israel
2:50Englander’s 34 billion millennium international management
2:55ranked number 92 which spreads its money over variety of strategies including
2:58statistical arbitrage parametrically which will reportedly has an asian focus
3:04fun in the works is said to run some millennium money
3:07parametric curves rise to the top in a world in which a little financial logic
3:12makes sense is not unexpected last year substantial volatility fuel the return
3:17of the quantity leading performer Service says eric siegel head of hedge
3:21fund research and management city private bank in New York
3:24even the same asset classes offered disparate outcomes for instant bond rate
3:29mostly fell but will relate junk bonds got cream
3:33this helped make distressed securities off more than ten percent the
3:36worst-performing hedge fund strategy last year according to Barkley head
3:40research
3:41so here’s the actual and
3:47bigger font so you can read the thing that you should take away from this list
3:52is most of these guys are really small or small portions within bigger funds
3:59and that’s one of the tricks or the deep hidden secrets
4:06well I guess it’s not that deep in but it’s not advertised when people are
4:11raising money right from pension funds and fund of funds etc is that the bigger
4:20you get a lot of strategies
4:23just don’t work because you end up moving the market so the smaller firms
4:29of the ones that can get the higher returns but there’s an offset set
4:34because you look at this article write more
4:38hedge funds shuttered then started in first quarter and so we not who they are
4:43going to be the winners vs who are going to be the losers
4:47especially when your pension fund trying to allocate money it can be quite
4:52dangerous
4:53you know and that there is statistics and data that they can use and look at
4:59their three-year audited returns and some of the ratios to see how much
5:05volatility to have etcetera but generally they would prefer to just
5:11that’s why they often put and
5:15a lot of these big funds allocate their money to the big names money managers
5:20because they just feel more comfortable like that and also these guys are
5:26raising money so they have the infrastructure in place to make the
5:30sales call the presentations to bring in the money
5:34where is a bunch of these smaller guys just don’t have that infrastructure but
5:38a lot of these since so the given that that is the case and has been proven
5:46probably over the last 20 years of modern finance theory that the bigger
5:52you get the less nimble you are the more you sort of morph into a money manager
6:02and the more you sort of morph into passive dumb money and the smaller you
6:07are the more nimble of the more aggressive you can be the less likely
6:12chance that you’re going to move the market and much more higher alpha return
6:16and so really if they had the staff on hand a lot of these pension funds to
6:23analyze and then they can outsource this and there’s a whole industry of being
6:28able to provide the service for pension funds etc
6:33- then allocate the funds for them but to disperse instead of big blocks money
6:39too
6:40separate that into much smaller chunks and diversify it over a bunch of these
6:46smaller firms and they come out a lot better in the long run and I see that is
6:54a trend going forward so dumb money and smart money in the parlance of Wall
7:02Street there’s the smart money in the dumb money the dumb money falls for
7:05investing fads cells into market panics and Paige ridiculous fees
7:11the smart money doesn’t
7:14what a lot of these big good money management firms that market themselves
7:20as hedge funds to sort of get the two and twenty or to appeal to the two and
7:25twenty because when you think about it
7:28a money manager gets two percent
7:31hey 1.5 they can even begin negotiated down to one point five percent so two
7:37percent versus – 20 is a big deal so you wanna you know I provide alpha
7:43I’m providing genius I’m not just a passive money that’s basically the
7:51market so whatever the market does
7:53that’s what we do we’re not going to outperform they’re not going to
7:57advertise themselves or market themselves in that regard to give you a
8:01little story my high pitched an idea to david einhorn’s firm about six months
8:08ago
8:10i would say that just from an observation standpoint to stand back
8:15people I dealt with their very smart very ply nice people but they seem a
8:25little very now they had a bad year last year so they’re probably a little
8:30cautious but they seem to be slow so it took them a long time to evaluate an
8:36idea they were very cautious
8:41and they didn’t they didn’t seem to be good at analyzing different sort of
8:48investment themes
8:49so you know that test we have blocks and you know which or basically an IQ test
8:58so which isn’t like the other even within an investment landscape they
9:05didn’t seem to be very good at that
9:07and so that’s a very important skill to have on Wall Street to understand sort
9:13of take a sector right
9:15you have to know which of these is the overall sector bad or is there
9:21difference within that sector and to be able to differentiate between two ideas
9:26that are very similar
9:28so they could even let’s just call it to stocks that fit into the same genre
9:32realm or type of company but to be able to evaluate which is the one to take
9:36versus the which one you shouldn’t do they seem very bad at that
9:41and I was struck by some of their analysis that and overall they’re pretty
9:48sharp guys but I was struck by the fact that they couldn’t differentiate between
9:53the quality of two different companies within the same sector and that
9:59I was like pretty obvious to me
10:02the differences and you see some of their holdings
10:06they’ve had in their portfolio it’s very much that hey we’re money managers were
10:12passive we have a lot of funds to invest that we have to stick it somewhere so
10:16we’re going to stick it in apple and it’s basically doing nothing and apple
10:22but we’re going to stick an apple and so my basic criticism of them now they pass
10:32on the idea and it did exactly what I said it would do it doubled within three
10:37to six months but I basically told them you guys need to be ready to go on this
10:43monday morning so you need to do your due diligence and be ready to take this
10:47seriously work all weekend on this and be ready to go monday at you know six in
10:54the morning because this is a no-brainer
10:56you’re getting a no-brainer price you’re going to be a freeroll this and they
11:01were just way too slow to react and you just you just give them what money away
11:05because you can freeroll ideas and what I mean by this is so this stock
11:10basically was at the ridiculous price so it didn’t matter you have two ways to
11:16win and that’s what you want that’s what I look for an ideas we have two ways to
11:19win
11:20so even if it the idea is a total failure you’re going to win and if it
11:26does what I say it’s going to do you’re going to double your money and so
11:29literally and I understand market tricks market structure and I knew they would
11:37try to push it down one more time monday the first move would be down to clear
11:41out any stopped before taking it up and sure enough your best price was to get
11:46the pre market or the opening play
11:49monday morning and then you had to dollar profit that day and you free roll
11:54it for the rest of eternity because you put your stopped up a dollar
11:58and you free rule the entire play and so they passed on it
12:02it doubled in 36 months it when another
12:07I don’t know twenty thirty percent above that
12:10so it was just a home run and they couldn’t differentiate that it was a
12:15home run and it took them too slow to recognize that they could freeroll the
12:20entire trade and so that’s the sort of definition of dumb money and that’s why
12:29money managers have become just passive obese just dinosaurs
