Big Hedge Funds Are Getting Slaughtered...but But But They Make Money Long And Short

[interestrateripoff]

If they are losing money on this scale they aren't very good at hedging....

Although the good news will be those managing these funds get paid no matter what the result so jobs a good un. And if they do fail just set up another one and tell the new clients about all the lessons you've learned. Rinse and repeat...

[Neverland]

just to add the fee structure with these hedgies makes it almost impossible to make moeny long term unless you pick the 1 in 20 that geuinely has a market beating trader steering the ship.

then add in a bank taking 1.5% to allot your moeny in a fund of funds and you gotta lot of young guns driving ferrari's

its just so obvious the mind boggles why anyone would invest with these people

greed i suppose

[Terribad]

Do hedge funds actually hedge?

[Neverland]

Do hedge funds actually hedge?

Generally, no

They are just hugely leveraged betting vehicles using other people's money skimming the profits off the top

[wonderpup]

They are just hugely leveraged betting vehicles using other people's money skimming the profits off the top

That is as good a description of what the City does for a living as any. The UK is a hedge fund for all practical purposes- except that most of us don't get any gains made- just losses incurred.

[Eos]

if they completely hedge, then they should only make small losses or small gains. the ones in question are probably directional - so the manager guesses the direction of the market and bets on that. If he gets it wrong, then he loses some money. If he leverages (i.e. borrows to put on an even bigger bet) then he loses a lot more - and most do leverage. In fact i think they more or less all leverage.

(ex- fund of hedge fund manager!)

[billybong]

The government should just borrow some money and give it to them to make up their losses or hey just use taxpayers money, the never ending stuff. Give them a bit more so they can say they're actually making money.

That's the way the systems supposed to work. The article's probably just missed that bit out.

[thod]

Do hedge funds actually hedge?

Suppose you take 20% of any of the profits your fund makes as your fee. Lets also suppose you take a large short position with another fund (who goes long). The hedge is, you agree to split the fee. If the market goes up or down you get 10% guaranteed no matter which way it goes. The worst outcome is stability because then you don't make so much.

[200p]

You need real growth for funds to increase in value. Shorting works OK sure, but remember price action spends 70% of the time NON-TRENDING.

[Henrik]

its just so obvious the mind boggles why anyone would invest with these people

greed i suppose

Considering the gains some hedge funds have had over the last few years, some of them must be taking quite large risks, so if only 15% are down more than 10% this year I'd say theyre doing really well.

If I had enough money, I'd be perfectly happy for a hedge fund to look after my money - the gains can be quite spectacular, although there is a risk of getting burnt too.

[vin rouge]

When they crash badly hedge funds only lose borrowed (other peoples') money.

[Tiger Woods?]

if they completely hedge, then they should only make small losses or small gains. the ones in question are probably directional - so the manager guesses the direction of the market and bets on that. If he gets it wrong, then he loses you lose some money. If he leverages (i.e. borrows to put on an even bigger bet) then he loses you lose a lot more - and most do leverage. In fact i think they more or less all leverage.

(ex- fund of hedge fund manager!)

Fixed.

[Henrik]

http://www.globalfunddata.com/hedge/funds/performance?page=271&order=field_return_ann_inception_value&sort=asc&amp%253Bsort=desc

have a check through.click 'inception' and aside from a few with stellar returns over the years there's thousands-literally,that haven't done so well.in my limited experience,the bulk of long term hedge holdings aren't worth the risk.

page 284 has the ones that have returned 62.1%+ since inception

by page 256 we're at 13% since inception

page 200 we're at 6.5%

page 150 we're at 2.41%

page 122 we're at the ones who literally would have been better off stuffing it under their mattress.

page 98 we're -4%+

page 82 we're -22%+

then we're into the newbies

presume the really bad ones get redemptioned off.

don't know if these figures are excluding charges,I'd presume they would be.thanks for making me look those figures up.fascintaing

If we look at an ascended sort of the 12 month figure, we get 37 pages of funds with no data (so I'll ignore those), and 94-37=57 pages of negative results and 284-37=247 pages of positive results. Seems like a pretty positive result to me over the last 12 months.

The larger hedge funds will typically have a range of different funds with different strategies etc as well, so whilst a couple of the funds in a fund might do badly, others will do well etc.

The site is driven by morningstar's data, and I'm not sure they have all data available - there are a few funds that I'd expect to be in the list that are missing, for example, so the data is not complete.

[Henrik]

No idea where to find better data, unfortunately. It'd be very interesting to see, but unfortunately the hedge funds are a bit of a secretive bunch

Technically, I'm intrigued by the systematic trading methods, but unfortunately information for a lay person is hard to come by, for obvious reasons. I find particularly systematic trading very interesting (http://forexmonaco.com/performance.htm), it's like "info wars" between different systems and algorithms. Riveting stuff for a computer nerd such as myself

[Tiger Woods?]

If we look at an ascended sort of the 12 month figure, we get 37 pages of funds with no data (so I'll ignore those), and 94-37=57 pages of negative results and 284-37=247 pages of positive results. Seems like a pretty positive result to me over the last 12 months.

The larger hedge funds will typically have a range of different funds with different strategies etc as well, so whilst a couple of the funds in a fund might do badly, others will do well etc.

The site is driven by morningstar's data, and I'm not sure they have all data available - there are a few funds that I'd expect to be in the list that are missing, for example, so the data is not complete.

Looking at the data another way, given that there are 247 pages of funds with results since inception, by looking at page 123 we see the median return is circa 3.33%. You can get that and more with much less risk.

Moreover, funds that do badly close, so there is survivorship bias in that list. Therefore the actual median returns will be lower than 3.33%. I suspect that a lot of the funds that have really high returns since inception are also quite new and have therefore been lucky. Chance means there are always outliers.

The thing to remember is that there are two sides to every financial transaction. One of them has to lose. What's worse is that it isn't even zero sum, as the market makers have to take their cut too. It's sort of obvious that, as the economy and market is the sum total of all these institutions and the businesses they serve, all the returns out there have to average out to something like "inflation plus dividends - costs." The only way a subsection of the market could do better was if they were exploiting inefficiencies in the market that others could not (e.g. due to some form of constraints on the rest of the market...which is perhaps an argument for why pension funds should do worse than average.) This may have been true when hedge funds were shiny and new, but now there are so many out there this seems unlikely.

Edited September 10, 2011 by Tiger Woods?

[Tiger Woods?]

quite funny,hugh hendry-who i always enjoy watching hasn't done so well over the year or years

http://www.globalfunddata.com/hedge/funds/performance/management?variant=Eclectica+Asset+Management+LLP

Hugh Hendry has done very well. It is his customers that haven't.