
The Golden Era of Hedge Funds Draws to a Close with Clients in Revolt - wslh
https://www.bloomberg.com/news/articles/2016-12-29/hedge-fund-agonistes-not-even-donald-trump-can-ease-the-pain
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padobson
I'm no expert, but this feels more cyclical than "end of an era", unless you
consider an era to be only 5-10 years.

If you look at the Dow (I know I know, small sample) over the last 10
years[0], it doesn't take a genius to see the emotions of the market over that
time have been unease (year 1), panic (year 2), reluctance (year 3-6), and
opportunistic (years 8-10).

After the next major correction, I wouldn't be surprised to see investors move
back to hedge funds.

[0][https://www.google.com/finance?q=INDEXDJX:.DJI](https://www.google.com/finance?q=INDEXDJX:.DJI)

~~~
jmcgough
I think what we're seeing is a significant shift away from actively managed
funds to passively managed funds, like index funds. People are becoming more
educated about personal finance and are recognizing how much active management
fees eat into their returns. There are also much more options than there used
to be (e.g. ETFs).

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lintiness
hedge funds investors on average are large, "qualified", and sophisticated.
the money's leaving because they've underperformed (they always do in big bull
runs), not because endowments etc have gotten "more educated about personal
finance".

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beamatronic
Some of the underperformance has been attributed to the crackdown in insider
trading

~~~
lintiness
unlikely. i think it has more to do with competitive pressures in markets and
the elimination of a lot of the less sophisticated participants (partly due to
higher frequency trading).

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beagle3
Why would you say it is unlikely?

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rvdavis
I think the commenter who stated that it is likely should cite their source.
If you make an assertion like that, you should back it up.

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beagle3
While that is true, the guy who said it was unlikely was guilty of the same
crime. They both need a "citation needed" response.

I personally remember enough cases like Steven A Cohen and Galleon and the
Gerson-Lehrman group[0], that I assign the probability "likely" to that claim,
so if someone says "unlikely" I ask him for his reasoning because I might need
to update my estimates. I was not trying to say it is wrong, just understand
his reasoning.

[0]
[https://en.wikipedia.org/wiki/Gerson_Lehrman_Group#Controver...](https://en.wikipedia.org/wiki/Gerson_Lehrman_Group#Controversies)

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chollida1
I'll make a prediction.

What's going away is the middle. The Billion dollar fund for equities, I'm not
sure what the equivalent size would be for a bond fund or Credit fund.

At the high end you'll always have your Genious stock piker funds, like Buffet
and Ackerman, etc. and your best in breed technology funds like Two Sigma.

At the low end you'll still have a bunch of 50-500 million dollar funds that
will always spring up and do well enough on the current market trend they
predict or leverage.

Unfortunately for the middle managing money gets tough. You can't compete with
the really large funds for people or tech due to the amount of money and
interesting problems they can throw at the hiring problem.

It also gets harder to manage money when you get that big, old strategies
might not be able to carry the new money you bring in from trading gains.

~~~
ChuckMcM
So income inequality comes to hedge funds?

In tech there is an interesting phenomena I've watched emerge several times; A
new technology or process gets going, it has lots of players, the market grows
until the technology matures and then it splits where the high end gets more
high and the middle dies. New players keep appearing but they can't jump the
void between new player and high end player.

So for semiconductors there were dozens of chip companies and they all had
various things they made. Then the market matured and only the people who
could reliably fab chips remained at the top. The good middle companies were
absorbed into the top, the not great ones died, and now you've got some
boutique small ones (fabless) and the big guns.

For "personal computers" or the PC space same thing, lots of companies, then
fewer and fewer, and then just a handful.

For Web companies same thing, lots of companies, then fewer and fewer, and
then just a handful.

(and interesting to see technology that sort of fizzled like personal robotics
and 3D printing)

Given that the incoming administration is pretty friendly to wall street I
would expect at least some boost for the industry.

~~~
smallnamespace
That's the normal life-cycle of a maturing industry, or more generally, new
species flooding into a ecological niche (you can see this a recently burned
forest, as waves of different species recolonize it) [1].

At the beginning, the niche is empty and new entrants flood in. The key
quality for the first colonizers is to be aggressive, reproduce quickly, and
be 'good enough' generalists. However, as the niche fills up, increasingly
specialized species slowly push out the generalists. Note that the specialists
generally don't try to compete with one another very much (competition is
expensive), but create their own niche-within-a-niche.

There are always new species trying to muscle in, but the specialists are able
to keep out competitors by being the best-adapted for that particular role.

[1]
[https://en.wikipedia.org/wiki/Ecological_succession](https://en.wikipedia.org/wiki/Ecological_succession)

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arcanus
Because it was a golden age for hedge fund managers, not their clients!

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zump
If I have $100k, where should I put it in ?

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hendzen
Quick answer:

35% in VOO, 35% in VWO, 30% in BND.

Depending on your risk tolerance you can lower/raise the proportion of BND.

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jimlawruk
Isn't that a little too much weight to Emerging Markets(VWO)?

How about simply 70% VT (Total World), and 30% BND

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emcq
You would have a higher effective fee, 0.14% vs 0.10% if you had an equal
split between VOO and VWO.

That said, I think there is healthy skepticism with the world funds in terms
of their ability to reduce risk considering so much correlation to us stock
and dollar value, relatively high fees, and relatively weak long term
performance relative to US markets.

Some of this is due to China not making available some of their investment
opportunities to foreigners. I'd love to get an index fund that has exposure
to growing companies like DJI or Didi.

~~~
twblalock
If you want to invest in Didi, which hasn't had an IPO yet, you can invest in
Apple and Alibaba, which have invested a lot of money in Didi.

Given that Apple is the largest holding in most S&P 500 and total stock market
index funds, anyone who has invested in those funds will benefit somewhat from
the success of Didi.

Jack Bogle, the founder of Vanguard, goes so far as to argue that a broad US-
market index fund is all you need for international exposure, because many US
companies will benefit from the success of the international companies they
have invested in and do business with.

I don't quite buy that argument, but it's something to keep in mind when you
construct a portfolio: index funds that appear to be distinct often overlap.

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jgalt212
Lot's bitching and moaning in this article about 2/20, but no mention of PE
and VC who also take 2/20\. PE returns lately have been good, but VC returns
on average over the long term have been underwhelming.

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pm90
> VC returns on average over the long term have been underwhelming.

Genuine question: why do VC's continue to exist?

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zazpowered
I think the best VCs have done amazingly

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jgalt212
The best asset manager in any sector has done amazingly. That being said, it
may be just as hard or harder to select an above average investor as it to
select an above average investment.

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kelvin0
Recently (last year or so), I've noticed Morgan Stanley posting a continuous
stream of programming jobs (C++, Python, Java...). I wonder : if this is
related to the story?

I live in Canada and they might be looking into lower the cost of development
and IT by hiring 'cheaper' labor?

Has anyone else noticed this big drive in recruitment from Financial sector
(elsewhere than in Canada)?

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manishsharan
I have been always curious why hedge funds required a Phd in maths or comp
sci. I would love to learn what algos and patterns in quantitative finance
need a phd level of research ?

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ocschwar
It's not the altos themselves.

The better hedge funds are full of PhDs because it takes that level of
education to avoid the Dunning Krueger effect, and in this market niche, DK
can bankrupt you fast.

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dilemma
You made this up.

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wrice314
Hedge funds often run at less than 100% net long, so it's not surprising to me
that they "underperform" in booming bull markets. Shifting to the passive
management exposes investors to huge losses that are often correlated to other
economic issues. Chasing returns through "passive" vehicles now feels like
herd behavior that will end poorly.

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coldcode
In the end what matters in any investment is total return which has to include
any fees. Many of these funds take a % of the profits, plus a guaranteed fee,
but not any % of the losses. If you advertise only the trader's return, it
sure looks much better than the total.

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SEJeff
One thing no one has seemingly mentioned yet is the era of robo-investing ala
betterment or wealthfront:

[https://investorjunkie.com/35919/robo-
advisors/](https://investorjunkie.com/35919/robo-advisors/)

~~~
twblalock
I don't think the people who use the robo-advisors are the same kind of people
who have been using hedge funds.

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et2o
Not yet, maybe.

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NotThe1Pct
Now that hedge funds ran out of things to manipulate, the swamp drained
itself.

