The Death of the Hedge Fund Industry Has Been Greatly Exaggerated

An article in Bloomberg reports that, despite the closure of some bigger name hedge funds, the overall number of liquidations fell in 2018. What may have seemed like an omen for the industry, the article says, is more of a “Darwinian thinning of the herd” that may suggest an improvement in quality. “As the industry has matured and the regulatory environment has become more vigilant, the cost of setting up shop has risen,” the article reports.… Read More

WorldQuant’s New Fund Underperformed

The first quant fund established for outside investors by the Connecticut-based firm WorldQuant has lagged its benchmark from the outset, according to an article in Bloomberg. The quant stock fund was created as a joint venture between WorldQuant (founded by Igor Tulchinsky) and Millennium Management (founded by Izzy Englander). According to the article, the fund was established to beat the MSCI World Index by 300 to 600 basis points annually but lost 9.5 percent in… Read More

D.E. Shaw’s Humans are Losing Money

A group of traders at the firm D.E. Shaw, one of the most successful quantitative investment funds, has “struggled to make money in 2018,” according to an article in The Wall Street Journal. According to a spokesman for the firm, its long-short equities group has produced annualized returns of 40% (exclusive of client fees) since January 2013, but the article reports that as of mid-October of this year the group’s losses reached about $100 million.… Read More

The Hedge Fund Strategy That Isn’t Working

Although tracking trends in financial markets was once a profitable investment strategy, the approach has fallen on hard times due to crowding. This according to an article in The Wall Street Journal. Trend-following is explained as follows: “If a security is going up—usually measured by a short-term moving average rising about a long-term moving average—then it’s time to buy. If it falls below, it’s time to sell.” During the 1990s and 2000s, the article reports, these… Read More

Volatility Presents Hidden Risk to Hedge Fund Returns

According to recent research from Robeco Asset Management’s David Blitz: “hedge funds have hitched their wagon to stocks with large equity-price swings—a misguided strategy over the long haul.” These findings were reported in a recent Bloomberg article. In an interview, Blitz said, “The fact that hedge funds are positioned like investors in high-volatility stocks, this does not contribute positively to their returns.” Blitz says that moving away from a low-volatility factor represents one of the… Read More

These Hedge Funds Don’t Want You

Some of the world’s best hedge funds are available only to employees, early clients and a “few lucky others, part of an effort to limit their size and keep them  nimble enough to continue racking up gains,” according to an article in The Wall Street Journal. This leaves investors with two options, the article explains: they can either invest in the hundreds of less attractive hedge funds or they can put their money in other,… Read More

Be Cautious of Mutual Funds Run by Hedge-Fund Managers

A recent study has found that “mutual fund managers who also run hedge funds significantly underperform their mutual fund peers,” according to an article in Barron’s. The article cites comments by University of Oregon finance professor Diane Del Guercio, who analyzed the performance of approximately 600 funds at the top 30 fund families and found that, from 2005 to 2011, “mutual funds managed side-by-side by hedge funds underperformed peer funds by 0.8 to 2.2 percentage… Read More

New Tactic by Hedge Funds to Find Talent

An article in Institutional Investor highlights an online competition—called the Stocks Debate Challenge–that is being used by hedge funds to find new talent “outside the well-trodden channels of elite schools and rival financial firms.” Through the new online platform, “anybody—regardless of credentials—is allowed to pitch investment ideas in a short video. The creators of the best submissions go on to the next round: debating fellow candidates in front of a board of hedge fund managers… Read More

Will Factor Investing Kill Hedge Funds?

Last month, the Financial Times ran a lengthy piece on factor investing that discusses to what degree it poses a threat to the hedge fund industry. The article recalls a controversial 2001 paper in which AQR’s Cliff Asness argued that the hedge fund industry’s skills were “overstated.” Today, the article reports, AQR is a “major player in the hedge fund industry. It’s $226 billion of assets under management outstrip even Ray Dalio’s Bridgewater Associates. But rather… Read More

Bill Ackman’s Possible Comeback and How Investors Could Benefit

The hedge fund titan that in recent years has endeared significant losses, and investor exodus and a failed activist campaign could be making a comeback, according to a recent article in Barron’s. Ackman’s publicly traded investment vehicle Pershing Square Holdings, the article reports, has gained more than 20% in asset value since March and, through July 10th, and was up over 10% on the year, “about double the return on the S&P 500 index.” The… Read More