Hedge fund geniuses beaten by monkeys again

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Hedge fund

A hedge fund has little to no regulation from U.S. Securities and Exchange Commission (SEC).

It can be aggressively managed to get to their goal that is to generate high returns and often using leverage.

A hedge fund uses a wide range of investments strategies and just some men are the chosen, you need 1$ million in net worth, excluding your primary residence.

So I still need some time to reach there, maybe some centuries…

And the interesting thing here is that you can invest in anything, for instance, real estate, stocks, bonds, energy and precious metals.

Hedge funds vs Stock

The performance of the hedge funds it has been sinking within the last years.

However, the average stock is always given better returns. Even though, the stocks are not giving too much to their owners, the monkeys.

Both investments work differently, have different levels of risk and investment returns.

hegde fund

Comparing a hedge fund with stocks, according to a study organised by Cambridge University Clare College found that if you keep a balance of 80% stocks and 20% cash (rebalanced once a year) you will get the best risk-managed simple portfolio for a stable investor.

So, someone who put 20% of their money in a saving account with a 0% interest rate (I’m sure you can do better than that) and the rest in stocks chosen randomly by dancing monkeys, will earn 11.8% returns per year against a 0.18% of the average hedge fund.

Lowest returns since 2011!

Hedge funds are for real men but it seems the monkeys are beating them.

They can have more fun than the men with all the pressure and work that it takes to run a great hedge fund.

Making money is not easy if you want to play in the league, an average hedge fund charges around 2% of the assets as a basic fee and 20% of any profits.

So to break even the hedge manager has to earn 9.5% before fees for an average investment portfolio that earns 6% year.

Current situation

You might think that no one wants to invest. Nevertheless, hedge funds remain popular.

You might ask why. They promise the golden goose of stock-like returns with a bond-like volatility.
But no matter what kind of strategy you can use since 1999 returns have steadily declined.

Even though the popularity increases the lack of skilled people makes some investors unhappy so they yanked back 15.1 billion in capital during the first quarter of this year.

Finding the next generations of traders won’t be easy, a good example is Point72.

They are managing 11$ billion in assets and in two years they have had 200 interviews but just 6 new employees.

As reported by Wall Street Journal, investors have been piling in.

And according to Barclays, almost 2.9$ trillion is invested in these hedge funds.

To see a great hedge fund it is necessary to have skilled managers and exploitable market inefficiencies and it seems neither of both are going well for the hedge funds returns.



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