Do hedge funds outperform the market_ – quora what is the hedge fund
Hedge funds are not supposed to outperform the markets. Fund of hedge funds They are supposed to provide you with attractive Risk Adjusted Returns (RAR) regardLess of market conditions.
People who believe that since Hfs can profit from the Long and the short sides should therefore have higher chance of beating the markets have obviously never shorted, nor run a balanced book in their lives. Requirements for hedge fund manager t does not work like that.
In the case of Millenium for instance, they generate 12-18% p.a. Hedge fund definition wikipedia regardless of market conditions. Managed futures hedge fund During the GFC, when everyone else posted -50%, they were marginally positive. Hedge fund pricing Everyone else has to clock +100% just to make up the losses. Hfrx global hedge fund index Meanwhile, Millenium has continued to post unimpressive but steady gains. Global
hedge fund index So, yes, LT they beat the markets, by not trying to beat it short term
Going Long Only is the equivalent of trying to fight Mike Tyson with one hand. Hedge fund holdings It is absolute risk: when markets tank, or go sideways, so does performance, because there is no hedge
Even accounting for survivorship bias, if you took the entire hedge fund industry and weighted it by AUM you would definitely find that the cap-weighted aggregate annualized returns would beat the market portfolio, certainly so on a gross basis and likely so on net. Index finance That said, if you simply looked at an average hedge fund, or really the median hedge fund, you probably wouldn’t find any alpha. Quant hedge funds But this question seems to be asking about the industry as a whole, and you’d want to think of that in terms of an AUM weighting.
The hedge fund industry takes alpha from many other players in markets, ranging from central banks to retail investors to strategic asset allocation institutional investors. Hedge fund That alpha comes from a range of sources, including superior fundamental views, provision of liquidity, true arbitrage, etc.–the number of strategies used by hedge funds is extraordinarily varied. How to join a hedge fund But if you were to simply take the track records of the 50 largest hedge funds, which represent a majority of hedge fund assets, you’d see very quickly that they beat the market portfolio, even net of fees.
Nick White’s answer makes some good points: there is survivorship bias in the return databases, many hedge funds do simply offer levered beta, alpha is a zero sum game, it’s really hard to find good alpha managers, and there is a well-established pattern for the distribution of alpha across a fund’s lifecycle. Wall street hedge fund But none of those are particularly relevant if you AUM-weight the industry. Hedge fund events Again, I’d agree that the median hedge fund probably has negative alpha. What is a hedge fund layman’s terms But the industry overall certainly has positive net alpha.
Nick is also substantively wrong that most hedge fund portfolios are substantially similar to mutual funds. Hedge fund operations associate salary Even if, as Nick seems to do, we only looked at equity hedge funds–which represent considerably less than a majority of hedge fund AUM–you’d still see immediately that the short leeway equity hedge funds have will create substantial, real deviation from a mutual fund portfolio. List of global macro hedge funds And then there are basically no accessible mutual fund substitutes for hedge fund categories like stat or FI arb, currency, credit, and so on.
Finally, while it’s true that many of the return streams of hedge funds can be replicated with combinations of passive asset classes, there’s still not really much good evidence that those replications hold up through market cycles. Hedge fund sales In part because of the survivorship bias, you’d expect that the enduring hedge funds do offer something truly uncorrelated and unpredictable that’s not just leveraged beta. Hedge fund capital Otherwise you’d have to believe that the sophisticated, institutional investors and sovereign wealth funds who comprise the majority of hedge fund AUM and are paying high fees to do so are systematically being mislead or making a mistake. Hedge fund technical analysis And if you’re that skeptical of human agency you’re probably not going to believe this answer under any circumstances.