4 ms·

I'm no expert, but this feels more cyclical than "end of an era", unless you consider an era to be only 5-10 years. If you look at the Dow (I know I know, smal

I'm no expert, but this feels more cyclical than "end of an era", unless you consider an era to be only 5-10 years. If you look at the Dow (I know I know, small sample) over the last 10 years[0], it doesn't take a genius to see the emotions of the market over that time have been unease (year 1), panic (year 2), reluctance (year 3-6), and opportunistic (years 8-10). After the next major correction, I wouldn't be surprised to see investors move back to hedge funds. [0]https://www.google.com/finance?q=INDEXDJX:.DJI https://www.google.com/finance?q=INDEXDJX:.DJI

jmcgough 10y ago
I think what we're seeing is a significant shift away from actively managed funds to passively managed funds, like index funds. People are becoming more educated about personal finance and are recognizing how much active management fees eat into their returns. There are also much more options than there used to be (e.g. ETFs).
- lintiness 10y ago
  hedge funds investors on average are large, "qualified", and sophisticated. the money's leaving because they've underperformed (they always do in big bull runs), not because endowments etc have gotten "more educated about personal finance".
  - jmcgough 10y ago
    You're right, I was thinking actively managed funds in general, not specifically hedge funds.
  - wsh91 10y ago
    It's possible that their views on the EMH have changed, too, no?
  - beamatronic 10y ago
    Some of the underperformance has been attributed to the crackdown in insider trading
    - lintiness 10y ago
      unlikely. i think it has more to do with competitive pressures in markets and the elimination of a lot of the less sophisticated participants (partly due to higher frequency trading).
      - beagle3 10y ago
        Why would you say it is unlikely?
        rvdavis 10y ago
        I think the commenter who stated that it is likely should cite their source. If you make an assertion like that, you should back it up.
        beagle3 10y ago
        While that is true, the guy who said it was unlikely was guilty of the same crime. They both need a "citation needed" response. I personally remember enough cases like Steven A Cohen and Galleon and the Gerson-Lehrman group[0], that I assign the probability "likely" to that claim, so if someone says "unlikely" I ask him for his reasoning because I might need to update my estimates. I was not trying to say it is wrong, just understand his reasoning. [0] https://en.wikipedia.org/wiki/Gerson_Lehrman_Group#Controversies https://en.wikipedia.org/wiki/Gerson_Lehrman_Group#Controver...
    - mason55 10y ago
      > the crackdown in insider trading Which, in reality, was the SEC and Preet Bharara trying to say that large investors aren't allowed to have meetings with the execs and investor relations people at the companies that they were large investors in, which doesn't make much sense and was knocked down by the courts.
- gragas 10y ago
  > People are becoming more educated about personal finance and are recognizing how much active management fees eat into their returns. Do you have a source that supports what this implies?
  - adventured 10y ago
    Everything I've run across for years now indicates it's a combination of Dunn's law and annoyance with fees driving the shift. --- "Fees matter. That is the overarching sentiment that emerged from an online Wall Street Journal survey asking readers about their investment style and satisfaction as part of the Journal’s series looking at the rise of passive, or index-based, investing." http://www.wsj.com/articles/readers-react-low-fees-are-driving-us-into-passive-funds-1477318719 http://www.wsj.com/articles/readers-react-low-fees-are-drivi... --- "Lower fees, as opposed to better performance, may be the big reason more investors are switching from active to passive. Morningstar found the investors in active funds improved their odds of beating passive funds by favoring funds with lower-than-average expense ratios." "It's not so much about active versus passive as it is about fees," Morningstar's Johnson said. http://www.cnbc.com/2016/08/29/investors-say-forget-it-to-active-funds.html http://www.cnbc.com/2016/08/29/investors-say-forget-it-to-ac... --- And this has been going on for ten years, which implies a sustained shift of understanding rather than a blip: http://www.wsj.com/graphics/passive-investing-five-charts/ http://www.wsj.com/graphics/passive-investing-five-charts/
- alasdair_ 10y ago
  The people that invest in hedge funds are, by definition, sophisticated investors. I don't buy the idea that they didn't understand the implications of a "two and twenty" fee structure until recently. What you have said is certainly true for the average retail investor that simply isn't legally allowed to invest in a hedge fund, of course.

jmcgough 10y ago

I think what we're seeing is a significant shift away from actively managed funds to passively managed funds, like index funds. People are becoming more educated about personal finance and are recognizing how much active management fees eat into their returns. There are also much more options than there used to be (e.g. ETFs).

lintiness 10y ago
hedge funds investors on average are large, "qualified", and sophisticated. the money's leaving because they've underperformed (they always do in big bull runs), not because endowments etc have gotten "more educated about personal finance".
- jmcgough 10y ago
  You're right, I was thinking actively managed funds in general, not specifically hedge funds.
- wsh91 10y ago
  It's possible that their views on the EMH have changed, too, no?
- beamatronic 10y ago
  Some of the underperformance has been attributed to the crackdown in insider trading
  - lintiness 10y ago
    unlikely. i think it has more to do with competitive pressures in markets and the elimination of a lot of the less sophisticated participants (partly due to higher frequency trading).
    - beagle3 10y ago
      Why would you say it is unlikely?
      - rvdavis 10y ago
        I think the commenter who stated that it is likely should cite their source. If you make an assertion like that, you should back it up.
        beagle3 10y ago
        While that is true, the guy who said it was unlikely was guilty of the same crime. They both need a "citation needed" response. I personally remember enough cases like Steven A Cohen and Galleon and the Gerson-Lehrman group[0], that I assign the probability "likely" to that claim, so if someone says "unlikely" I ask him for his reasoning because I might need to update my estimates. I was not trying to say it is wrong, just understand his reasoning. [0] https://en.wikipedia.org/wiki/Gerson_Lehrman_Group#Controversies https://en.wikipedia.org/wiki/Gerson_Lehrman_Group#Controver...
  - mason55 10y ago
    > the crackdown in insider trading Which, in reality, was the SEC and Preet Bharara trying to say that large investors aren't allowed to have meetings with the execs and investor relations people at the companies that they were large investors in, which doesn't make much sense and was knocked down by the courts.
gragas 10y ago
> People are becoming more educated about personal finance and are recognizing how much active management fees eat into their returns. Do you have a source that supports what this implies?
- adventured 10y ago
  Everything I've run across for years now indicates it's a combination of Dunn's law and annoyance with fees driving the shift. --- "Fees matter. That is the overarching sentiment that emerged from an online Wall Street Journal survey asking readers about their investment style and satisfaction as part of the Journal’s series looking at the rise of passive, or index-based, investing." http://www.wsj.com/articles/readers-react-low-fees-are-driving-us-into-passive-funds-1477318719 http://www.wsj.com/articles/readers-react-low-fees-are-drivi... --- "Lower fees, as opposed to better performance, may be the big reason more investors are switching from active to passive. Morningstar found the investors in active funds improved their odds of beating passive funds by favoring funds with lower-than-average expense ratios." "It's not so much about active versus passive as it is about fees," Morningstar's Johnson said. http://www.cnbc.com/2016/08/29/investors-say-forget-it-to-active-funds.html http://www.cnbc.com/2016/08/29/investors-say-forget-it-to-ac... --- And this has been going on for ten years, which implies a sustained shift of understanding rather than a blip: http://www.wsj.com/graphics/passive-investing-five-charts/ http://www.wsj.com/graphics/passive-investing-five-charts/
alasdair_ 10y ago
The people that invest in hedge funds are, by definition, sophisticated investors. I don't buy the idea that they didn't understand the implications of a "two and twenty" fee structure until recently. What you have said is certainly true for the average retail investor that simply isn't legally allowed to invest in a hedge fund, of course.