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I'm not sure I understand your suggestion. So there are (simplistically) two funds, Sucker and Winner. They take complementary positions, and, whichever one wi
by SamBam 7y ago
I'm not sure I understand your suggestion.
So there are (simplistically) two funds, Sucker and Winner. They take complementary positions, and, whichever one wins gets transferred to Winner.
So far so good. Winner is winning every bet, and Sucker is losing every bet.
Now you need people to put money into Sucker, because it has to come out the other end into Winner. How do you convince them to do that? By giving them a cut of Winner's profit?
But that's where things don't add up. How can the Sucker investors and the Winner investors both be making a profit from Winner's funds, if the net money going in and out of the combined funds is equal?
- Mvandenbergh 7y agoPeople with illegally earned money put their money into a series of short lived sucker funds which exist to funnel money invisibly into the winner fund where it reappears as legitimate investment returns. The dumb version of this with very simple mirror trades which were easy to track has been seen "in the wild" in Russia as carried out by people at DB. BTW I don't really buy this theory but that's how it would work.
- james-imitative 7y agoThis has been happening in Peru, Uganda, Bolivia and Grenada.
- ThrustVectoring 7y agoIt's simpler than you think. You take a pair of offsetting trades, and later you re-write history to book the losing trade on Sucker and the winning trade on Winner.
- SamBam 7y agoNo, I got that, as I stated. The issue is that half your trades are losing money, so where is that money coming from.
- texasbigdata 7y agoExactly. If they push cash out it doesn't work. It doesn't seem so brazen that 40 years of proprietary IP could have built something to scrape 0.00000x% of the value of something much bigger that's roughly but not exactly built on mathematical principles and is largely unexplored due to a relatively short life. The "sovereign pump and dump" is interesting. Fund A is 20% of your assets and is "clean". Fund B raises the asset value of whatever A is invested in, and A monetizes. You could maybe even do this without the manager knowing. But it seems so crazy inefficient surely if you had a billion dollars this isn't the way you would do it.
- s1artibartfast 7y agoAs I understand the argument, the money is coming from investors in the looser fund, which usually still makes a modest profit, and has great branding from also managing the winner fund. If RenTec medallion fund is capped at 10B and their other funds are 100B, every 1% profit they transfer is 10% performance improvement in medallion. As long as the large fund is still profitable, it is basically a management fee. Alternatively, the looser fund could be another external fund, operating in cahoots using a complementary strategy to launder monday.
- SamBam 7y ago> which usually still makes a modest profit But for Winner to be beating the market, Sucker has to be underperforming the market, since hedge funds, on average, match or underperform the market (see Buffet's famous ten-year bet: hedge funds massively underperformed index funds). If the managers of Sucker have figured out a way to outperform the market for 20 years, even while secretly giving away some of its earnings, then that would already be an incredibly impressive success story, even without the cheating.
- s1artibartfast 7y agoI think performance relative to the market is irrelevant to the strategy. making a profit /= beating the market. People invest in hedge funds all the time that under-perform the market. In this case, the sucker fund just sucks a little more than usual. while the sucker fund under-performs the market, the firm also looks like hot shit because the winner fund is the most profitable fund on earth.
- seventytwo 7y agoThe winning fund only needs to win 50.01% of the bets to make it work.