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If you look at the spiva scorecard report 92% of hedge funds underperformed the sp500 - so the bet would essentially be a coin toss with 92/8 percent probabilit

If you look at the spiva scorecard report 92% of hedge funds underperformed the sp500 - so the bet would essentially be a coin toss with 92/8 percent probability split

hhs 3y ago
If anyone is interested, this is over a period of 15 years: https://www.spglobal.com/spdji/en/research-insights/spiva/ https://www.spglobal.com/spdji/en/research-insights/spiva/
swyx 3y ago
as a former hedge funder i feel compelled to point out that the goal of most modern hedge funds is to provide uncorrelated alpha - not absolute outperformance. This is because it is trivial to size up/down sp500 beta - if you are a sophisticated financial institution, you have access to futures and other instruments to have as much exposure as you want, no hedge funds needed. so take 20% of your $ and put it in a 5x levered index exposure for 100% sp500, then allocate the 80% of the rest to low beta alternatives, for a very very simplified example. comparing HF alpha to SP500 beta is literally apples and oranges. but at this point ive lost most of the general public's attention.
- matsemann 3y ago
  The problem is all the actively managed funds that promise to retail investors that they will outperform, while costing lots in fees. Normal people don't need hedged funds.
- fdsjvkalljj 3y ago
  Buffett's response would be that the general ideas underpinning that thinking of "alpha," "beta" and modern portfolio theory are bunk.
- misja111 3y ago
  if this were the case, then you'd expect these modern uncorrelated funds to outperform the sp500 in times when the market went down, right? However this is not the case, the sp500 also outperformed most funds in e.g. 2020. See e.g. https://www.reddit.com/r/dataisbeautiful/comments/10lpczg/oc_average_hedge_fund_vs_sp_500_annual_return/ https://www.reddit.com/r/dataisbeautiful/comments/10lpczg/oc...
  - bombcar 3y ago
    The purpose of a hedge fund should be to hedge a specific risk. But those hedge funds are not advertised, the ones advertised are the ones being sold.
  - swyx 3y ago
    > outperform the sp500 in times when the market went down your chart shows the market going up in 2020. but look im not saying ALL or even MOST hedge funds reach their goal. usually the average hedge fund underperforms given its a ~zero sum game. just objecting to the popular way of comparing things. you dont judge a fish by its ability to climb trees.
verbify 3y ago
If I recall correctly, the bet terms were a collection of hedge funds, which changes the odds - was what are the chances that if you pick 5 balls out of a bag containing 92 red balls and 8 blue balls that the majority of your balls will be blue? Much much less than 8%.
- verbify 3y ago
  Closer to 0.32% than 8%.

If you look at the spiva scorecard report 92% of hedge funds underperformed the sp500 - so the bet would essentially be a coin toss with 92/8 percent probability split

hhs 3y ago

If anyone is interested, this is over a period of 15 years: https://www.spglobal.com/spdji/en/research-insights/spiva/ https://www.spglobal.com/spdji/en/research-insights/spiva/

swyx 3y ago

as a former hedge funder i feel compelled to point out that the goal of most modern hedge funds is to provide uncorrelated alpha - not absolute outperformance. This is because it is trivial to size up/down sp500 beta - if you are a sophisticated financial institution, you have access to futures and other instruments to have as much exposure as you want, no hedge funds needed. so take 20% of your $ and put it in a 5x levered index exposure for 100% sp500, then allocate the 80% of the rest to low beta alternatives, for a very very simplified example. comparing HF alpha to SP500 beta is literally apples and oranges. but at this point ive lost most of the general public's attention.

matsemann 3y ago
The problem is all the actively managed funds that promise to retail investors that they will outperform, while costing lots in fees. Normal people don't need hedged funds.
fdsjvkalljj 3y ago
Buffett's response would be that the general ideas underpinning that thinking of "alpha," "beta" and modern portfolio theory are bunk.
misja111 3y ago
if this were the case, then you'd expect these modern uncorrelated funds to outperform the sp500 in times when the market went down, right? However this is not the case, the sp500 also outperformed most funds in e.g. 2020. See e.g. https://www.reddit.com/r/dataisbeautiful/comments/10lpczg/oc_average_hedge_fund_vs_sp_500_annual_return/ https://www.reddit.com/r/dataisbeautiful/comments/10lpczg/oc...
- bombcar 3y ago
  The purpose of a hedge fund should be to hedge a specific risk. But those hedge funds are not advertised, the ones advertised are the ones being sold.
- swyx 3y ago
  > outperform the sp500 in times when the market went down your chart shows the market going up in 2020. but look im not saying ALL or even MOST hedge funds reach their goal. usually the average hedge fund underperforms given its a ~zero sum game. just objecting to the popular way of comparing things. you dont judge a fish by its ability to climb trees.

verbify 3y ago

If I recall correctly, the bet terms were a collection of hedge funds, which changes the odds - was what are the chances that if you pick 5 balls out of a bag containing 92 red balls and 8 blue balls that the majority of your balls will be blue? Much much less than 8%.

verbify 3y ago
Closer to 0.32% than 8%.