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
Steve Wozniak, co-founder of Apple with Steve Jobs, recently announced his participation in a crypto startup. During the interview, Mr. Wozniak (Wo...
CEOs view activist funds as predatory rather than as opportunities. https://lnkd.in/dbSA6hk
Hedge funds (along with liquid alternative investments) and smart beta funds have been among the fastest growing investment vehicles over the past few years. I believe that the reason for this growth is that they both appeal to the investors’ focus on factors or performance drivers rather than alpha or labels. More and more, investors view investments as a bundle of factors that are evaluated for their impact on the overall portfolio.
The performance of hedge funds is one of the most written about topic in the financial media. Headlines herald each week's hedge fund performance compared to stocks, as if this information is actually useful for investors. The publication of hedge fund performance is dominated by hedge funds, their industry groups, and the "service providers" who depend on hedge funds for access and information.
Investment managers have struggled for years to find unexploited market anomalies that may be able to generate alpha. Extensive research has indicated that there is a positive relationship between the relative size of a fund and its performance: smaller funds outperform larger funds. The industry has rushed to invest in small funds to capture this alleged out-performance. Large asset management companies, banks, hedge fund manager and even pension funds have raised assets to invest (or to take equity stakes) in small funds on the assumption that they will provide better risk-adjusted returns than their larger siblings.
An enormous body of literature touts the benefits of investing in hedge funds. A typical analysis uses aggregate indices published by Hedge Fund Research, Morningstar and others to make their case. Investors can’t invest in hedge fund indices, however, and are thus unable to monetize the purported benefits of hedge funds.
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)