Big Data Doesn’t Automatically Mean Big Investment Returns

The quant craze in investing doesn’t come without its own set of challenges, says a recent Bloomberg article. As hedge funds delve headlong into the data world to hoist up returns and stay competitive, some may lack the prowess necessary to harvest relevant and accurate numbers, says Matei Zatreanu, who led the charge at $19 billion hedge fund King Street Capital Management. “There are those who realize their industry is changing and their fund isn’t… Read More

Hedge Funds Hungry for Quants

If you’re looking to land a job at a hedge fund, polish up your algorithm building and data mining skills to get to the front of the line. This according to a recent Bloomberg article that explains how hedge funds are hiring quants “like never before in search of an answer to lackluster returns.” King Street Capital Management and Tudor Investment Corp. are among the names anxious to beef up their data analysis and research… Read More

GMO: Don’t Bail on Hedge Funds

The fall in rates since the financial crisis has benefited stocks and other long-duration assets while hurting short-duration assets such as hedge funds, says GMO’s Ben Inker. “The characteristics that made hedge funds disappoint,” he says, “may well prove a blessing if discount rates start to rise.” Inker argues that today’s high returns and advanced U.S. equity valuations are not sustainable because they “represent an increase in the present value of an asset without any… Read More

Investors Looking to Quants for Fund Management Muscle

As hedge fund managers continue to grapple with losing dissatisfied clients, those funds more highly-focused on a computer-driven approach (so-called “quantitative” hedge funds) are standing out, the Financial Times reports. According to FT, the flow of investor funds into the “quant” sector have more than doubled since 2009 (from $408 billion to nearly $880 billion). Several large hedge funds are increasing investments in quant strategies “as they search for new—and potentially more reliable—ways to produce returns.”… Read More

Australian Hedge Fund Produces 23% Annual Returns by Staying Clear of Commodities

While many foreign investors may consider Australia a mining stockpile to feed China’s growth, one hedge fund proves otherwise. In a recent Barron’s profile, Marcus Hughes of LHC Capital explains how, since its inception in 2011, the $195 million Australia High Conviction fund has enjoyed annualized gains of more than 23% by avoiding the “meltdown” in commodity prices. LHC has purchased mostly small-cap (under Australian dollar 1 billion, roughly US$750 million) Australian stocks which they… Read More

Loeb Warns of Hedge Fund “Washout”

Dan Loeb, founder Third Point, draws two conclusions about the hedge fund industry and the markets in his recent shareholder letter, according to this recent Bloomberg piece. The first is Loeb believes the hedge fund industry is in the early stages of what he calls a “washout” after the group’s poor returns over the last few years. Loeb says the recent run for many funds is one of the most “catastrophic periods” he has ever… Read More

Hedge Fund Cloning Strategy Shows Massive Outperformance

In his MarketWatch column, Mark Hulbert discusses an investment strategy based on imitating hedge funds, which was developed by Mebane Farber of Cambria Investment Management. Faber argues that “we can duplicate [the best hedge fund’s] investment performance without having to pay a penny in management fees” by reviewing their holdings (which are publically available with a maximum of a 45-day lag) and imitating carefully. Specifically, “the key is to construct a portfolio of the stocks… Read More

An Ecosystem of Experts Who Advise Top Hedge Funds

Ari Bergman acts as a consultant to pensions, endowments, and hedge funds, often through under-the-radar arrangements. As the Wall Street Journal describes it, Bergmann “is part of a larger ecosystem of consultants who sell their investment beliefs to hedge funds. The funds, hungry for returns or cheap hedges for their portfolios, get fresh ideas that comprise or inform their wagers.” Consultants receive a share of gains resulting from their ideas, as Bergmann does, or charge… Read More

Study: Smaller Hedge Funds Beat Largest Funds by Wide Margin

  Nick Motson and a colleague from City University London recently concluded that small hedge funds outperformed large hedge funds on average over the 20-year period 1995-2014.  The smallest hedge funds, based on assets under management, returned 0.75% per month or 9% annually, compared to 0.61% or 7.32% annually for the largest funds. Given that 90% of the assets managed by hedge funds are with firms managing over $1 billion, while firms with under $100… Read More

The Largest Buyer of U.S. Treasurys Might Surprise You

According to a report in the WSJ, the largest buyer of U.S. Treasurys has been a “little-known New York hedge fund run by a former Yale University math whiz“. Element Capital Management, run by Jeffrey Talpins, has been the biggest purchaser of U.S. Treasury debt over the past 10 months. The firm, which looks to “exploit small inefficiencies in the world’s most liquid securities”, has raised some questions because its cumulative purchases of Treasurys looks… Read More