A combination of differences in performance and economic conditions have led investors to increase holdings in real assets and private equity at the expense of hedge funds and actively managed mutual funds.
SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) "As financial technologies, methods of capital formation, market structures, and investor interfaces continue to evolve, FinHub will play an important role in facilitating the SEC’s active engagement with innovators, developers, and entrepreneurs. In addition to being a resource for information about the SEC’s views and actions in the FinTech space, FinHub is also a forum for engaging with SEC staff...)
The controversy over the nature of Cryptocurrencies spilled over in dramatic fashion to the U.S. Senate as noted economist Nouriel Roubini's testimony, accompanied by a 30 page report, compared cryptocurrencies and blockchain technology to Ponzi schemes and bubbles with no economic purposes.
Cryptocurrencies are not suitable in investment portfolios because of unstable returns and volatility, and low correlation between various cryptocurrencies.
A number of my posts over the years have highlighted evidence that manager selection does not add value to the portfolio process. (See "Manager Selection is a Hail Mary Pass"). This holds true for investment consultants, hedge fund of funds, among others. This latest study finds the same holds for pension fund consultants.
ShapeShift cryptocurrency platform has started asking customers for personal information in what will be an increasing trend for firms to conform to a version of know-your-customer rules. This would be an important step in increasing the legitimacy and assets of cryptocurrency. Enhanced transparency for cryptocurrencies is also a high priority for government regulators in getting comfortable with the market.
Is a 1993 and 1998-type debt crisis coming? For those of us who lived through the previous debt crisis see some critical similarities to today's conditions: shrinking risk spreads; increased leverage, especially in emerging countries and China; potential dramatic political mayhem; an increase of concern about the level of debt. In previous cases, the key to the crisis was a global turn towards risk avoidance. So far, this has not been onerous. But the risk is certrainly there.
A longstanding problem for hedge funds has been the limited number of companies that have sufficient amount of publicly traded stock to accommodate the appetite of hedge funds with billions of dollars to invest. The result is "herding" where many large hedge funds end up with similar positions: i.e., a concentration of assets in a small number of stocks. Additionally, these stocks make up a significant component of the S&P 500 which causes the heavily exposed hedge funds to show performance that mimics the S&P 500 as well as each other.
Facebook stock decline hits hedge funds hard
Hedge fund titan, Steve Cohen, known as the ultimate "stock picker," i.d. make trades based on fundamental analysis, is predicting that quantitative models using massive databases, will dominate trading, as well as other sectors.https://www.wsj.com/articles/models-will-run-the-world-1534716720
About Ezra Zask
Ezra Zask has spent over 30 years in the finance and investment areas, providing research and consulting to investors and investment management companies. He has founded and managed a hedge fund, fund of funds and investment advisory firms, ans held senior positions in hedge funds and investment advisory firms. He has taught at Princeton and Yale graduate schools and written extensively including a best-selling book, All About Hedge Funds, Second Edition (McGraw Hill: 2013)