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Hedge funds have to be big
- themafia 1y agohttps://archive.is/v2bS5 https://archive.is/v2bS5
- ioblomov 1y agoJinx!
- ioblomov 1y agohttps://archive.ph/v2bS5 https://archive.ph/v2bS5
- dmoy 1y agoYou can also subscribe to Matt Levine as a newsletter and get it in your inbox Monday-Thursday. Sometimes it's quite hilarious.
- Esophagus4 1y agoAnd the Money Stuff podcast! He and Katie are fantastic.
- themafia 1y ago> The point of a financial market is to allocate capital to its most productive uses. Someone who is very good at allocating capital should be allocating a lot of capital, not her own Robinhood account. These two facts are not connected at all. There's no reason to assume the market cannot work or reliably find the "most productive" uses of capital in the aggregate. > And an efficient market would allocate a lot of capital to her Then that would give a single individual more control over the market than is healthy and would naturally tend towards inefficiency. The basic presumption here is that centralization of the economy around a limited number of entities is great for efficiency. I can find no examples in history of this and I can find many where this actually just increases corruption. Given everything we learned about the "too big to fail" era I find articles like this to be obvious and grotesque lies.
- gruez 1y ago>These two facts are not connected at all. There's no reason to assume the market cannot work or reliably find the "most productive" uses of capital in the aggregate. Right, but just because it works "in the aggregate" doesn't mean that's how things work "should" work. I'm sure the road network would still muddle on if we allowed drunk drivers to drive, but we still ban them from driving. The article isn't even arguing for government intervention; it's just describing how things plays out naturally.
- fsckboy 1y agoi had similar objections to yours but i would phrase the corrections differently. >The point of a financial market is no, the point of a financial market is to be a place where people who need money for lucrative projects can get it, and a place where people who have money can invest it, decoupling those transactions from the term of the investments and the irregularities of the different economic opportunities. To put it in simpler terms, think of the market of a town in medieval england, a financial market would allow you to know nothing in particular about farming but invest profitably in the farming activities of the town, getting what portion you want of your money back whenever you want it. >to allocate capital to its most productive uses is in the nature of a market that has the features markets need to function efficiently. The point of a financial market is capital allocation, and people will partake even if the market is inefficient. Consider illegal/black markets, they are often cited as truly free markets where you can invest large sums of cash or buy anything for a price, and even though the prices are high, there are customers. Those markets can be made more efficient, but the fact they exist shows the power of markets without efficiency. >>And an efficient market would allocate a lot of capital to her >Then that would give a single individual more control over the market than is healthy one of the features a market needs for efficiency (think of efficiency as "goods at a fair price") is that no participant alone can affect the prices; for that to be true there needs to be competition, and without it you get "market failure", a market where participants receive no benefit from participating. (markets should operate at a point where sellers are saying "that price offer is too low" and buyers are saying "that price offer is too high", but all the "great deal, I'll take it" transactions that already took place to get it to that point are were the happiness is created from thin air.) as new information emerges, prices can shift up and down to maintain that "take it or leave it" equilibrium. no system is perfect, not democracy, not the courts, etc., but regulations and people mostly acting sensibly even in self interest makes markets the best method we have of allocating happiness most effectively. being cynical about market capitalism is understandable, but it doesn't get you anywhere, other systems demand even more cynicism.
- alltheseas 1y ago[dead]
- fsckboy 1y agoI studied a lot of finance in grad school, at world leading elite finance school, and I am a very successful investor myself and can give you sound advice up and down the market and quibble your use of terminology. (sad bear, or dog in lab with goggles meme) I have no idea what a hedge fund is.
- SatvikBeri 1y agoThere's no precise definition, but I prefer "funds that focus on alpha", as opposed to e.g. an index fund.
- fsckboy 1y agoi'm not being snarky but, if you want to focus on alpha, construct a portfolio that removes beta, and nobody does that except portfolio theory. so probably "funds that focus on obtaining private information, or flaws in public information"? focusing on alpha and finding undiscovered alpha are not the same thing, and it's absolutely not clear and contrary to portfolio theory that you would succeed
- dinkblam 1y agoI studied a lot of computer science in grad school, at world leading elite CS school, and I am a very successful developer myself and can give you sound advice up and down the dev space and quibble your use of terminology. … I have no idea what a compiled language is.
- fsckboy 1y agoi don't know what it means to not know what a compiled language is
- skybrian 1y agoI believe they are saying that computer languages can be implemented by compilers and by interpreters, so "compiled" is technically a property of the implementation, not the language. But in casual use, "compiled language" means a language that is usually implemented using a compiler.
- wilkommen 1y agoBig is bad, actually. Centralization of power in a small number of hands creates structural market distortions, generates corruption, and diminishes the freedom of all.
- loeg 1y agoMaybe read beyond the headline.
- Herring 1y agoThe article covers like 6 separate finance topics (news commentary). OP is right about the first one, eg expect highly restrictive non-competes and lower compensation over time.
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- xxpor 1y agoThat's certainly one philosophical point of view, but it's not universally true. https://www.theargumentmag.com/p/the-problem-with-bossbabe-leftism https://www.theargumentmag.com/p/the-problem-with-bossbabe-l...
- loeg 1y agoMatt Bruenig is possibly the least qualified person on the planet to write about economic policy.
- Ekaros 1y agoSo either they have to be big to play outside public markets. Or small enough that they can still exploit things... For actual hedge I might actually want to go for later. Especially if you look at premiums on say EA. And possibility of getting your money out in reasonable time.
- mamonster 1y ago>Somewhere out there is a person who’s spent years running a 4 Sharpe ratio at her $5 million friends-and-family hedge fund, or her Robinhood personal account, but she never gets a job at a big hedge fund. Weird numbers to pick here. I know like 10 guys off my personal contact list who can do 4 Sharpe at 5 million easy. The "game" in hedge funds isn't 4 Sharpe at 5mio AUM, its 1.5-2 Sharpe at 1b AUM or 1 Sharpe at 10b AUM, both of which are infinitely harder than 4 Sharpe at 5mio AUM. You can do 4 Sharpe at 5mio AUM after 6 years at a BB in anything that's not equities or delta 1.
- sjdfsjdfg93425 1y ago>You can do 4 Sharpe at 5mio AUM after 6 years at a BB in anything that's not equities or delta 1. Can you explain for a non-finance audience?
- missedthecue 1y agoSharpe ratio is a metric that measures how much excess return an investment earns per unit of risk. So if someone says “this fund runs at a 4 Sharpe,” they mean the fund’s returns are four times the volatility, net of risk-free rate. Super super ELI5 is that people don't like volatility in returns, even if the returns are good (i.e. down 40% one year, up 200% the next year is 34% CAGR, but crazy volatility). T-bills for example have extremely low volatility but also very low return. The holy grail is very low volatility with a great return. A 4 sharpe fund is in that quadrant.
- jklein11 1y agoEquities and "delta 1 assets" are very liquid, meaning there are a lot of buyers and sellers. This helps to make price discover more efficient. Anything outside of that means that there is much less liquidity and therefore inefficiencies in price. Think about it this way. You are trying to sell an apple. In one room, there are 100 people trying to sell an apples and 100 people trying to buy them. In the other room there is 1 person trying to buy apples and no one selling. In the first room you don't have much leverage. The buyers can go to the other 99 sellers if they don't like your price. In the second room you have a ton of leverage. If the person wants to buy an apple they are either going to have to buy it from you or wait for another seller to enter the room. When it comes to non equity or delta 1 assets, there tends to be more complexity in understanding the assets, which acts as a barrier to entry. If you have been in investment banking for 6+ years, you likely understand these complexities and can find pricing inefficiencies.
- neilv 1y agoA bit off-topic to the post, but maybe very relevant to HN techbros seeing this article, and musing about becoming (lower caste) finance bros... You know how there's a boots on the ground truth to what an early tech startup's Incentive Stock Options are actually worth nowadays, and how people should think about them (but that most startups won't admit)? With that secret reality in mind, how should software engineer candidates considering working for a hedge fund or private equity job think about the compensation there? Maybe especially about "carry"? A recruiter for a firm seeking a "Principal" level engineer, which would require moving to NYC, mentioned compensation of "$X salary, 50% bonus, and $Y carry". Where $X is a usual current non-FAANG Senior+ startup SWE salary, and Y is only a bit larger than X. The recruiter opened by stating the single number $((X*1.5)+Y), as if it were the annual TC familiar to us from levels.fyi. When I Google for "carry", it sounds like some speculative share of something unclear about some investments the firm owns or manages, and then this share might vest over 5-10 years, if I remain with the firm that long. The $Y dollar amount sounds like it's a fixed amount bonus or capped value of a share. Also unclear whether there's an additional $Y+ grant of carry each year. If this were most tech startup ISOs, I would know that the ISOs were probably worth $0 or less, and in some ways rigged to be that way, even if the company has a successful exit from which people with real shares profit. For this $((X*1.5)+Y) job, the $X salary alone will cover a lifestyle of renting a modest apartment in Brooklyn, plus decent savings building from whatever the rest of it is. I'm unclear whether the bonus and carry make it even competitive with Google L6, though. What do I need to know about "carry" or other aspects of the compensation? What time horizons, conditions, and probabilities are involved?
- stanford_labrat 1y agoMy portfolio was +94% in 2024 and +52% in the past 6 months (I took a massive haircut thanks to April's tariff saga and by having biblical levels of greed...lesson learned). How do I declare for the inaugural Hedge Fund Draft?
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- ivape 1y agoWhy would you want to work anywhere if you get returns like that every year?
- Esophagus4 1y agoI think the hedge fund guys would rather be you… Just say you run a “small family office” and enjoy the win ;)
- singingfish 1y agoOf course they do - it's the same as bookmakers or other gambling syndicates, it only makes sense to operate at a certain scale otherwise the rounding errors and stochasticity will kill you.
- bfg_9k 1y agoDepends on the HF. They're talking largely about multi-strat or macro firms here. If you're a HF that fills a niche, then size actually works against you as the pool of opportunities available reduces as you get bigger. For a somewhat hyperbolic example, check out RenTech's Medallion Fund. https://en.wikipedia.org/wiki/Renaissance_Technologies https://en.wikipedia.org/wiki/Renaissance_Technologies
- BrenBarn 1y ago> The point of a financial market is to allocate capital to its most productive uses. This kind of thing is basically a paperclip-maximizer trap in another form. That may be the point of a financial market, but it's not the point of a society, so it doesn't really matter what the point of a financial market is, because that point should be constrained and directed in the service of the overall society.