So I'm looking to expand my portfolio a bit and get into hedge funds. Was hoping to hear from members, if any, that have experience with hedging and how to get started in the area, recommendations for funds to explore (large and smaller), etc. Any tips and/or insights are greatly appreciated. If there are any reputable/solid resources as well, I'd love to hear about them for learning more! Thank you in advance!
Getting into Hedge Funds
- Thread starter Sailorz
- Start date
U.S. market seems very expensive at the moment but who knows what will happen in the short term.
Warren Buffett Bet $1M He Could Outperform Hedge Funds Over A Decade. He Did It With A Strategy Requiring No Investing Skill
Back in 2007, Warren Buffett made a bold move. The legendary investor bet $1 million that a simple, no-frills S&P 500 index fund could beat a selection of hand-picked hedge funds over 10 years. Experts manage the hedge funds, and for that, they charge a layer of fees. Many see them as the...
finance.yahoo.com
do not get greedy
they grab up to 20% of profit and you put up all the money
they take huge risks as there is no downside for them
and they want a lot of your money for you to get in
crazy idea
they grab up to 20% of profit and you put up all the money
they take huge risks as there is no downside for them
and they want a lot of your money for you to get in
crazy idea
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Interesting! My understanding was that the incentives in the hedge fund business were more aligned (as compared to say employees at a bank) with that of outside investors (i.e. those managing the hedge fund usually have a large portion of their personal wealth in the fund, exposing themselves to the downsides just as much if not more than outside investors).
The original idea was to hedge your monies against market downturn by having some funds go short, a rather conservative play as it restricts upside, therefore the name Hedge Fund
but it has become a very wild ride as hedge funds are into all kinds of abstruse derivatives that mutual funds are not allowed to play as the government wants to protect naive investors and you cannot get out of it as they hold funds until redemption date and , to make things worse, hedge funds self-report their results
So, to protect investors, the government restricts hedge funds to the wealthy. However, a person’s economic status may demonstrate an ability to withstand losses, but it certainly does not demonstrate financial sophistication and they often lose their money assuming they are part of the elite club
with a superior investment team that the average person cannot get into, they are wrong.
the managers want 20% of profit and a 2% MER and you absorb all of loss
compare hedge funds results to the S&P 500 and the S&P 500 wins
While the the S&P 500 is a scary ride it is a pussy compared to hedge funds but you can amerliorate
risk with a fund of hedge funds
with one hedge fund you can lose it all while the the S&P 500 guarantees great results as it is a matter of time and an index fund is free at .1 % MER and they take none of your profit
If you want to expand your portfolio put your monies in the S&P
For a " reputable/solid resource" on hedge funds
refer to post 2
but it has become a very wild ride as hedge funds are into all kinds of abstruse derivatives that mutual funds are not allowed to play as the government wants to protect naive investors and you cannot get out of it as they hold funds until redemption date and , to make things worse, hedge funds self-report their results
So, to protect investors, the government restricts hedge funds to the wealthy. However, a person’s economic status may demonstrate an ability to withstand losses, but it certainly does not demonstrate financial sophistication and they often lose their money assuming they are part of the elite club
with a superior investment team that the average person cannot get into, they are wrong.
the managers want 20% of profit and a 2% MER and you absorb all of loss
compare hedge funds results to the S&P 500 and the S&P 500 wins
While the the S&P 500 is a scary ride it is a pussy compared to hedge funds but you can amerliorate
risk with a fund of hedge funds
with one hedge fund you can lose it all while the the S&P 500 guarantees great results as it is a matter of time and an index fund is free at .1 % MER and they take none of your profit
If you want to expand your portfolio put your monies in the S&P
For a " reputable/solid resource" on hedge funds
refer to post 2
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I belong to Morningstar.com and pulled these articles
Are Hedge Funds Now Worth Considering? | Morningstar
Why Mutual Funds Can't Be Hedge Funds | Morningstar
Will Hedge Funds Ever Recover? | Morningstar
What Hedge Funds Teach About Investment Management | Morningstar
Hedge Funds Look Slightly Better This Year | Morningstar
Are Hedge Funds Now Worth Considering? | Morningstar
Why Mutual Funds Can't Be Hedge Funds | Morningstar
Will Hedge Funds Ever Recover? | Morningstar
What Hedge Funds Teach About Investment Management | Morningstar
Hedge Funds Look Slightly Better This Year | Morningstar
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I think I read in TGAM in the last few weeks that ETF's that give exposure to hedge funds are set to debut, or are already on sale on exchanges.
My first thought was that was precisely the last thing the average retial investior needed, so I did not make more notice of it.
My first thought was that was precisely the last thing the average retial investior needed, so I did not make more notice of it.
I keep thinking about this thread so I am going to put my thoughts together in point form
1 IMHO, Hedge funds are trying to do something that cannot be done, in the aggregate, beat the market index. I accept that as a simple fact for if they could , in the aggregate, beat all indexes then all monies would be chasng this exceptional return except the monies that are needed in short term, generally speaking
2 To put it another way , the alpha of Hedge Funds has to , mathematically, give a return that is greater than the risk - that is called alpha. If they did then more monies would pursue the higher alpha and the market would adjust accordingly meaning higher alpha would then be found in less risky stocks whose cost has gone down as alpha seeking money went to Hedge Funds meaning value would be found in these under valued non hedge fund stocks as hedge funds became overvalued
3 They take 2% MER so they have to beat the market by 2% - like any mutual fund- just for you to break even with the market but if they do get lucky they then take 20% of your profit
4 The people who get rich in Hedge Funds are the Hedge Funds who sell them. As you need a million dollars to buy a Hedge Fund there are lots of salesmen after your money
5 If you do get lucky and make good money when do you get out?
First, you have to wait for redemption date and if you are well ahead it is very hard to pull the trigger on what seems like a future fortune as that is human nature, and eventually you will lose those gains.
6 you can buy a fund of hege funds which reduces risk meaning if the aggregate of hedge funds can beat indexes, after commissions, you will beat indexes. if so more monies would be chasing this goal creating the paradox of point 2
7 those buying hedge funds are greedy and greed will destroy you
8 The more I think about this the more I am not interested in even speaking to Hedge Fund salesmen and let them influence me
1 IMHO, Hedge funds are trying to do something that cannot be done, in the aggregate, beat the market index. I accept that as a simple fact for if they could , in the aggregate, beat all indexes then all monies would be chasng this exceptional return except the monies that are needed in short term, generally speaking
2 To put it another way , the alpha of Hedge Funds has to , mathematically, give a return that is greater than the risk - that is called alpha. If they did then more monies would pursue the higher alpha and the market would adjust accordingly meaning higher alpha would then be found in less risky stocks whose cost has gone down as alpha seeking money went to Hedge Funds meaning value would be found in these under valued non hedge fund stocks as hedge funds became overvalued
3 They take 2% MER so they have to beat the market by 2% - like any mutual fund- just for you to break even with the market but if they do get lucky they then take 20% of your profit
4 The people who get rich in Hedge Funds are the Hedge Funds who sell them. As you need a million dollars to buy a Hedge Fund there are lots of salesmen after your money
5 If you do get lucky and make good money when do you get out?
First, you have to wait for redemption date and if you are well ahead it is very hard to pull the trigger on what seems like a future fortune as that is human nature, and eventually you will lose those gains.
6 you can buy a fund of hege funds which reduces risk meaning if the aggregate of hedge funds can beat indexes, after commissions, you will beat indexes. if so more monies would be chasing this goal creating the paradox of point 2
7 those buying hedge funds are greedy and greed will destroy you
8 The more I think about this the more I am not interested in even speaking to Hedge Fund salesmen and let them influence me
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Thank you for giving your thoughts. So the way it was explained to me, which peaked my attention in exploring the world of hedge funds, is that it's common for the people who manage the hedge funds, to ALSO have a SIGNIFICANT portion of their personal income attached to the fund, thereby absorbing even more risk than the outside contributors to the fund. If this is the case, wouldn't their incentives be more aligned with the outside participants/contributors? Whereas, giving funds to a bank to manage, the incentives of the people managing your money at the bank may very well NOT be aligned given the limited personal risk they take in managing YOUR funds.
they are not obligated to invest their own monies but your point is irrelevant
What matters is the bottom line which is what we are discussing
Remember this crucial fact, past performance of any fund, hedge or not, is not indicative of future performance as they have not been in existence for over a hundred years like an index whose
past performance is indicative of future performance because they have such a long history
Funds that have beat the market for ten years brag they are the starship fund which is BS
There are so many funds out there some will outperform for ten years by chance
A fund would have to outperform the market for 30 years to peak my interest
If you have some play money that you do not need for years and want to maximize return
put it in the S&P then forget about it
You will find a hedge fund is not worth the wild ride IMHO as that is all you will be thinking
about with no exit until redemption date which could up to 5 years
If you could jump in and out of a hedge fund through an ETF with some play money and like to gamble with the odds against you, that seems like what you want, but that does not exist to my knowledge
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I think them aligning their interests with investors IS a VERY important point...because they are as motivated, if not MORE motivated, than outside investors to take actions which would give an acceptable rate of return comparable with the level of risk acceptable to outside investors. This is on the assumption that they have a significant portion of their PERSONAL assets in the fund. If they did NOT have any downside to undertaking risky investment hedges, I'd tend to agree with you,
That the managers actually care deeply about making a profit
for their investors, or not, is completely irrelevant
I saw a vid where a hedge fund lost everything and the manager made the vid to publicly apologize to the shareholders. He actually cried he cared so much.
Besides, I suspect managers put their own monies in to attract investors who assume what you are assuming. Putting their own monies in is their sales pitch
They make their monies from the 20% take of profit
The 2% MER covers overhead
All that matters to you is the bottom line
Concerning your statement
"Whereas, giving funds to a bank to manage, the incentives of the people managing your
money at the bank may very well NOT be aligned given the limited personal risk they take in managing YOUR funds."
You are correct.
Mutual fund salesmen get 1% of MER plus trailer fees from the funds they sell so they
try to sell the funds with the best trailer fees. If you want a mutual fund you can buy one yourself
thus saving 1% of the MER. You can easily get professional opinions from Morningstar etc that are objective. I hate mutual fund salesmen.
It is BS that the mutual fund salesman is a financial advisor, he is a salesman interested
only in commission and offers no - I mean zero - expert financial advice.
The "financial advisers" at the banks are the worse with their weekend diplomas that taught them sales all over the wall
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Thank you. I appreciate the info. If one were to consider speaking with a professional financial person regarding investing (who aren't salesmen or bs "financial advisers"), where would you recommend looking? Most people I know go through bankers, which, as mentioned above, creates issues given the asymmetry of incentives between the person seeking advice and the person giving advice.
You do not need one
Google Warren Buffet or Jack Boogle on the topic of index funds as they are the best investors in
history and are giving you their wisdom. Also google Ben Felix
You want a fudicial advisor, they take 1%. Tell them you want only index funds but need their discipline
to save and not sell in bear markets which is investors worse mistake as you are selling low then buy back high
Ben Felix , of dimensional funds , will do just that but I think you need a million $ but other dimensional fund advisors want less
Let me know how it goes as I am intererested. I am not telling you what I think I know
because I am a nice guy, we are talking so I can learn
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If he wants an advisor, I would go with a fiduciary(fee only).
Wonder what is up with the Dimensional returns these days. I know they favour small cap/value stocks.
Checked years ago and did not see any outperformance. Maybe now they are doing better?
Dimensional will offer factor funds based on various factors such as small cap/value stocks
but results are meant to be long term or you can stick with index funds
Fiduciaries are persons or organizations who act on behalf of others and are required to put clients’ interests ahead of their own. I would consider Dimensional to be a fiduciary
Yes, I was looking at the long term returns of Dimensional but could not see any Alpha. But again, that was years ago.
In some countries I believe an advisor must be a fiduciary. Not in Canada.
I believe fiduciary duties/responsibilities are imposed by law. An important distinction (or at least was), is whether the person is an advisor vs. an adviser. I believe fiduciary responsibilities are imposed if the person is advertising themselves as advisers, whereas it's situational for advisors....
Yes, I believe that is the case. It is nice to not have to worry about a conflict of interest.
Probably the best. Second choice would be a Robo Advisor if you do not want to just do it yourself.
I believe Robo Advisor will simply adjust your portfilio every day to match your risk
IE if you want your porfolio to be safe with 50% in bonds then as the market changes your balance
it will buy/sell at the end of the day to match your risk tolerance.
They probably have a questionaire and then recommend porfolio balance which you create
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