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There would be no disbursements from one fund to the other. Fund A would purchase an asset slowly over time. When it has finished purchasing the asset, fund B w
by gibybo 7y ago
There would be no disbursements from one fund to the other. Fund A would purchase an asset slowly over time. When it has finished purchasing the asset, fund B would purchase that asset quickly at a scale large enough to increase the market price of it. As the price rose, fund A would sell its position.
The net effect is that fund A sees increased returns and fund B sees decreased returns.
- Carioca 7y agoAnd, importantly, the proportional impact in fund A is much larger than the one in fund B
- rramdin 7y agoThis is throwing any efficient-market hypothesis out the window. Msybe this would work for a year, but why would anyone invest in fund B if it is a consistent loser. If you can figure out a way to slowly buy an asset and then quickly buy more of it and make both strategies profitable at all, then you're onto something huge. Almost as huge as Ren Tech
- gibybo 7y agoIt assumes an efficient-market. The money is coming at the expense of fund B. It doesn't need to be a consistent loser, it just needs to make less than it otherwise would on average. People invest in funds that under perform the market all the time. That describes the majority of the finance industry.
- ivalm 7y agoI mean, hedge funds on average ARE consistent losers. People invest in B through marketing and proximity to A.
- deleted 7y ago[deleted]
- codyb 7y agoHopefully not a silly question, isn’t this just a classic pump and dump scheme? Wouldn’t this be exceedingly traceable over time? Are trades not public over time? Especially larger positions? Or do we only know when Berkshire Hathaway (for instance) sells off some Coca Cola stock because it’s a publicly traded firm?
- gibybo 7y agoA pump and dump relies on manipulating others. In this scenario, the goal of the buying/selling patterns is not to manipulate the market into believing the price of the asset is something different, but just as a mechanism for transferring money between the funds. It's also just a simple example of how it can be done. Many assets and derivatives are correlated to each other in the market in various ways. Their correlations can be exploited to allow you to do the same thing using an arbitrarily complicated set of assets instead of just one. Some trades are required to be public, but the majority aren't. It wouldn't be too hard to hide the transfers in trades that don't need to be public.
- codyb 7y agoHuh, neat, thanks for the detailed answer. I wonder how something like this would scale. Seems like you’d hit a limit where large trades would get noticed, so I guess the key would be to spread it over time.
- deleted 7y ago[deleted]