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Actually having a giant amount of money to throw at a hedge fund is counterproductive. In order to invest all that money, a greater number of investments will n
by stouset 10y ago
Actually having a giant amount of money to throw at a hedge fund is counterproductive. In order to invest all that money, a greater number of investments will need to be made. And the more investments one makes, the more likely it is for them to revert to the mean, performance-wise.
It's a simplification, but if a hedge fund manager finds a fantastic investment for $100mn, but they have $100bn to invest, they have to be able to repeat that feat over and over and over and over.
- dsacco 10y agoYes I'm aware of that, but it doesn't change the reality that hedge funds have an incentive to have more money from fewer investors, even if they have to be careful not to take on too much money overall.
- throwaway40483 10y agoAbsolutely. Reduce the number of friction points. "Managing money is easy. Managing investors is hard."
- Ntrails 10y agoWhich is how you end up with Access Funds who charge fees to put money into other hedge funds which they got capital into early and performed well. So now to get into a very successful fund you're paying two sets of fees and praying that they continue to outperform. Hedge funds are at best going to net break even as an industry after fees, quite probably negative. So to look at "Funds of funds" and say they're a good idea is pretty mind boggling.