6 ms·

> if a hedge fund is actually worth investing in (and there are quite a few) Apparently it is hard to come up with a collection of 5 of them that would beat th

by pg314 10y ago

> if a hedge fund is actually worth investing in (and there are quite a few) Apparently it is hard to come up with a collection of 5 of them that would beat the S&P 500 over 10 years. At least Buffett had a hard time finding counterparties for a bet.

arjie 10y ago
Renaissance Technologies claims 71% annualised from 1994 to 2014.
- akvadrako 10y ago
  It's easy to find funds that had great performance in the past. If anybody knows how to pick those that will perform in the future, they are keeping it a secret. And you might not be able to invest directly in rentec, but their holdings are public [1]. So if they really had a good secret, it could be replicated. [1] https://www.holdingschannel.com/all/stocks-held-by-renaissance-technologies-llc/ https://www.holdingschannel.com/all/stocks-held-by-renaissan...
  - gizmo 10y ago
    Those are only their LONG holdings, and rentec isn't a long only fund. In addition, SEC disclosures lag behind and doesn't disclose at what price shares were acquired. So by looking at their SEC disclosure forms you can see which investments would have made you money in the past, the only thing you now need is a time machine.
  - whitepoplar 10y ago
    RenTec doesn't make money off "buy and hold." They're a quant firm that profits from small inefficiencies in the market, trading that with leverage. Their really good secret is that they have superior data sources, and superior modeling (lowering their risk to almost nothing).
    - caminante 10y ago
      Their secret sauce is less subtle. They harvest tax loopholes [0]. [0] http://www.zerohedge.com/news/2014-07-21/how-rentec-made-more-34-billion-profits-1998-fictional-derivatives http://www.zerohedge.com/news/2014-07-21/how-rentec-made-mor...
      - tptacek 10y ago
        That might be true, but you'd make your argument more credible if you cited Bloomberg (or anyone else, but BB is who ZeroHedge cites) rather than ZeroHedge, the InfoWars of finance.
        caminante 10y ago
        > That might be true, but you'd make your argument more credible if you cited Bloomberg (or anyone else, but BB is who ZeroHedge cites)... Your statement's not "credible." ZH didn't just cite Bloomberg. The ZH post also includes excerpts from the 93 page report (not included in the Bloomberg article) released by the US senate subcommittee, which was highly relevant. Is anything in the ZH post false? Please add it to the discussion. Next time, please comment on the substance of ideas and arguments instead of ad hominem attacks. It was one of the first searches that came back for the topic I was looking for. It added more context than a brief Bloomberg article.
        tptacek 10y ago
        Pointing out that a source isn't credible isn't an ad hominem attack --- or, in my case, even an attack at all. I'm broadly sold on the idea that Renaissance profits largely through tax loopholes.
        caminante 10y ago
        Respectfully, for the link, you're attacking ZH and not the substance of ZH's positions.
  - argigg 10y ago
    People have been talking about rentec for a long time, and their gains are larger than would be expected if they were merely the most lucky of a large group of random investments.
- TheSpiceIsLife 10y ago
  Now name four more
- valuearb 10y ago
  They are a market maker, that accounts for most of their outperformance.
dsacco 10y ago
RenTec, D.E. Shaw, Baupost, Bridgewater, Farallon, off the top of my head. There are others. I agree that it's hard to find firms that beat the market over long terms but it's not quite that difficult. Much like other very difficult but not impossible things in life, it is very difficult but not impossible to beat the market for long periods of time. It's fair to say that most people, millionaires included, should go with index funds. But that doesn't mean it's hard to come up with funds that beat the market. They just aren't really available to people without a very high net worth. Unfortunately the conversation about hedge funds has been dominated by binary thinking, especially since Buffett's wager was publicized. The pendulum has swung so far to the other side that there's not a whole lot of fair discussion about the utility of hedge funds.
- stouset 10y ago
  Are you willing to bet $1,000 that those funds will, in aggregate, beat VTSMX over the next 10 years? It's easy to pick the winners in hindsight. Buffett put $1mm on a bet that it's hard to do it beforehand. If Protege partners couldn't do it with $1mm on the line, what makes you so convinced that you can?
  - dsacco 10y ago
    Sure, I'll take that bet absolutely. It's a little reductive to use "past performance is not an indication of future gains" as an argument. If you extrapolate that with the premises that I am using (namely, that it is possible to intentionally and consistently beat the market), there is no reason to have faith in the continued investment in anything, private or public, because you cannot use any past measure of success as guidance. But I don't care about the success in of itself, I care about the cause of that success, and intrinsically I believe there is a cause. Facebook has done well since its IPO. But since we're throwing out its past performance entirely, we shouldn't consider it a sound investment. Venture capitalists shouldn't have faith in Uber or Snapchat, because its past performance as a private company means nothing going forward. Real estate is not a sound investment because eventually there will be another market correction. And so on and so forth. Except there are sound arguments for investing in each of those examples (please don't nitpick them specifically...) because people naturally view their respective success as a function of purposeful action. I view certain hedge funds as possessing the same capability for success. Ultimately, entropy consumes every existing phenomenon we can observe. What we define as "consistent success" is only coherent over slices of time for anything, not just the ability to forecast the market. The only reason why we continue to invest in anything is because we believe that someone at the helm of past success can continue to pull it off in the future. Every streak must necessarily come to an end, whether it's competing as an elite athlete or being the dominant technology company or forecasting market movements. So yes, I'd absolutely take that bet. I don't believe in EMH; I believe that past success for firms like those has been caused by skill and strategy, which is repeatable until fundamental things change (industries evolve, markets evolve, successful managers retire, etc). I definitely believe that firms like Renaissance Technologies will continue to print money in the future because they have a profitable methodology for doing so, unless something changes. Because I do not believe the success is due to chance, this wager becomes more a question of whether or not I believe the skilled management of these firms will change in the near future or whether the market itself will fundamentally make their strategies untenable. For most of them, I'm confident in another ten years of superlative performance. All successful investing begins with observing, modeling and capitalizing on market inefficiencies. You can do this with real estate, business ownership, securities, etc. It is clear to me that there are hedge fund managers who are playing an entirely different game than the unprofitable ones the media fixates on. They are similar only in name, but it's like the difference between counting cards and gambling. These are managers who can identify, through their own insight or the aggregate insight of their firms, inefficiencies esoteric enough that they are extremely difficult to find, but useful enough that they can be profitably traded on. EDIT: I forgot you asked me a specific question...the reason why I feel confident taking on this bet when Protege Partners, LLC is losing is because I'm choosing a small, specific subset of the hedge fund industry that I believe in for the reasons explained above. In contrast, Buffett and Protege's bet is over a basket of funds, a "portfolio of funds of hedge funds." I am not arguing with you that most of the hedge fund industry is crap, just as I wouldn't argue that most people who start tech companies fail. I'm betting on the outliers. If anyone can just log onto Long Bets and do this I'm happy to take the bet with you immediately.

by pg314 10y ago

arjie 10y ago

Renaissance Technologies claims 71% annualised from 1994 to 2014.

akvadrako 10y ago
It's easy to find funds that had great performance in the past. If anybody knows how to pick those that will perform in the future, they are keeping it a secret. And you might not be able to invest directly in rentec, but their holdings are public [1]. So if they really had a good secret, it could be replicated. [1] https://www.holdingschannel.com/all/stocks-held-by-renaissance-technologies-llc/ https://www.holdingschannel.com/all/stocks-held-by-renaissan...
- gizmo 10y ago
  Those are only their LONG holdings, and rentec isn't a long only fund. In addition, SEC disclosures lag behind and doesn't disclose at what price shares were acquired. So by looking at their SEC disclosure forms you can see which investments would have made you money in the past, the only thing you now need is a time machine.
- whitepoplar 10y ago
  RenTec doesn't make money off "buy and hold." They're a quant firm that profits from small inefficiencies in the market, trading that with leverage. Their really good secret is that they have superior data sources, and superior modeling (lowering their risk to almost nothing).
  - caminante 10y ago
    Their secret sauce is less subtle. They harvest tax loopholes [0]. [0] http://www.zerohedge.com/news/2014-07-21/how-rentec-made-more-34-billion-profits-1998-fictional-derivatives http://www.zerohedge.com/news/2014-07-21/how-rentec-made-mor...
    - tptacek 10y ago
      That might be true, but you'd make your argument more credible if you cited Bloomberg (or anyone else, but BB is who ZeroHedge cites) rather than ZeroHedge, the InfoWars of finance.
      - caminante 10y ago
        > That might be true, but you'd make your argument more credible if you cited Bloomberg (or anyone else, but BB is who ZeroHedge cites)... Your statement's not "credible." ZH didn't just cite Bloomberg. The ZH post also includes excerpts from the 93 page report (not included in the Bloomberg article) released by the US senate subcommittee, which was highly relevant. Is anything in the ZH post false? Please add it to the discussion. Next time, please comment on the substance of ideas and arguments instead of ad hominem attacks. It was one of the first searches that came back for the topic I was looking for. It added more context than a brief Bloomberg article.
        tptacek 10y ago
        Pointing out that a source isn't credible isn't an ad hominem attack --- or, in my case, even an attack at all. I'm broadly sold on the idea that Renaissance profits largely through tax loopholes.
        caminante 10y ago
        Respectfully, for the link, you're attacking ZH and not the substance of ZH's positions.
- argigg 10y ago
  People have been talking about rentec for a long time, and their gains are larger than would be expected if they were merely the most lucky of a large group of random investments.
TheSpiceIsLife 10y ago
Now name four more
valuearb 10y ago
They are a market maker, that accounts for most of their outperformance.

dsacco 10y ago

RenTec, D.E. Shaw, Baupost, Bridgewater, Farallon, off the top of my head. There are others. I agree that it's hard to find firms that beat the market over long terms but it's not quite that difficult. Much like other very difficult but not impossible things in life, it is very difficult but not impossible to beat the market for long periods of time. It's fair to say that most people, millionaires included, should go with index funds. But that doesn't mean it's hard to come up with funds that beat the market. They just aren't really available to people without a very high net worth. Unfortunately the conversation about hedge funds has been dominated by binary thinking, especially since Buffett's wager was publicized. The pendulum has swung so far to the other side that there's not a whole lot of fair discussion about the utility of hedge funds.

stouset 10y ago
Are you willing to bet $1,000 that those funds will, in aggregate, beat VTSMX over the next 10 years? It's easy to pick the winners in hindsight. Buffett put $1mm on a bet that it's hard to do it beforehand. If Protege partners couldn't do it with $1mm on the line, what makes you so convinced that you can?
- dsacco 10y ago
  Sure, I'll take that bet absolutely. It's a little reductive to use "past performance is not an indication of future gains" as an argument. If you extrapolate that with the premises that I am using (namely, that it is possible to intentionally and consistently beat the market), there is no reason to have faith in the continued investment in anything, private or public, because you cannot use any past measure of success as guidance. But I don't care about the success in of itself, I care about the cause of that success, and intrinsically I believe there is a cause. Facebook has done well since its IPO. But since we're throwing out its past performance entirely, we shouldn't consider it a sound investment. Venture capitalists shouldn't have faith in Uber or Snapchat, because its past performance as a private company means nothing going forward. Real estate is not a sound investment because eventually there will be another market correction. And so on and so forth. Except there are sound arguments for investing in each of those examples (please don't nitpick them specifically...) because people naturally view their respective success as a function of purposeful action. I view certain hedge funds as possessing the same capability for success. Ultimately, entropy consumes every existing phenomenon we can observe. What we define as "consistent success" is only coherent over slices of time for anything, not just the ability to forecast the market. The only reason why we continue to invest in anything is because we believe that someone at the helm of past success can continue to pull it off in the future. Every streak must necessarily come to an end, whether it's competing as an elite athlete or being the dominant technology company or forecasting market movements. So yes, I'd absolutely take that bet. I don't believe in EMH; I believe that past success for firms like those has been caused by skill and strategy, which is repeatable until fundamental things change (industries evolve, markets evolve, successful managers retire, etc). I definitely believe that firms like Renaissance Technologies will continue to print money in the future because they have a profitable methodology for doing so, unless something changes. Because I do not believe the success is due to chance, this wager becomes more a question of whether or not I believe the skilled management of these firms will change in the near future or whether the market itself will fundamentally make their strategies untenable. For most of them, I'm confident in another ten years of superlative performance. All successful investing begins with observing, modeling and capitalizing on market inefficiencies. You can do this with real estate, business ownership, securities, etc. It is clear to me that there are hedge fund managers who are playing an entirely different game than the unprofitable ones the media fixates on. They are similar only in name, but it's like the difference between counting cards and gambling. These are managers who can identify, through their own insight or the aggregate insight of their firms, inefficiencies esoteric enough that they are extremely difficult to find, but useful enough that they can be profitably traded on. EDIT: I forgot you asked me a specific question...the reason why I feel confident taking on this bet when Protege Partners, LLC is losing is because I'm choosing a small, specific subset of the hedge fund industry that I believe in for the reasons explained above. In contrast, Buffett and Protege's bet is over a basket of funds, a "portfolio of funds of hedge funds." I am not arguing with you that most of the hedge fund industry is crap, just as I wouldn't argue that most people who start tech companies fail. I'm betting on the outliers. If anyone can just log onto Long Bets and do this I'm happy to take the bet with you immediately.