hedge funds

“Our asset allocation approach, we allocate to strategies, not to asset classes, right? Hedge funds aren't an asset class. You know, long short equity is a strategy you either do or don't want to be allocated to.”

“The other thing that happened was, and it really started post Lehman, hedge funds disappointed. Hedge funds in the past, say equity long, short hedge funds, had a certain kind of Capture of, if the S&P went up 10%, you might expect them to make five or six per…”

“I think that by the time you can replicate most of those strategies, the advantage that they have has probably gone away.”

“Equity long short is this sort of existential question, which is, can this succeed in the way it has in the past? That's easy. No, it can't. It's more crowded.”

“Hedge funds tend to traffic in technology where there's a lot of winners and losers and consumer names where they can walk into the stores and understand them, and you see that in the data.”

“I think on Sharpe ratio, it still would have been the S&P.”

“I know that's a silly thing because hedge funds aren't really an asset class, but a diversifying portfolio in the marketable space.”

“If we were condemned to produce the median return of the hedge fund space, there's I don't think we'd have any allocation.”

“In hedge funds, with all due respect, it feels like we're just fighting over how big our slice of a pie is gonna be, whereas in private equity and venture especially, it feels like we're growing the pie.”

“Much more bottom up. You know, we think the scarce resource are really great, great managers. And, you know, we've learned this the hard way, right? When you try to say, here's my view of the world, let's shove a mediocre manager in to fit that view of the wor…”

“Very, very few of our, you know, best investments have had every single box check absolutely perfectly, and in fact, some of our more mediocre initial investments have been the things that kind of check every box, but again, that spark wasn't necessarily there…”

“I had to learn the finer and softer skills of leadership and management that again, because not all incentives are aligned in industry. Not everybody cares about money. Not everybody wants to be a millionaire. Not everybody has the right drive that everybody h…”

“I don't foresee us Making that a core part of our value prop. If only because our mission is to democratize a lot of the higher end wealth management things. And those are almost always capacity constrained or exclusivity plays, right?”

“After the crisis, because you had a lot of schools that basically were illiquid because they had hedge funds that locked up on them, private equity distributions, and these schools didn't have the money to pay their distribution. So they were stuck. And now so…”

“We've had long-time partners, some of the best people ever in the business, they're clearly not putting the time in they used to.”

“So we eliminated hedge funds from the vocabulary, and we eliminated alternatives from the, we don't talk about alternatives or hedge funds. We talk about equities, credit, inflation-linked things, etc.”

“Hedge funds are a fee structure or a legal entity so that I don't care if it's a hedged equity, directionally long hedge fund or private equity, it's equity.”

“And, you know, the one or two percent, you disagree with me, but I think one or two percent probably deserve to be making all the money they're making.”

“For what we'll do in hedge funds, I hope, we're looking for high single digits. Net, actually. High single digits net, so somewhere low double digits gross.”

“Credit investing is very different in that it. Looks more like a bank. It's particularly when you get into the new origination elements of investing or maybe prop trading to some extent, but just take on the direct lending side. When you walk in to evaluate a …”

“One of the things that's happened in the last 15 years that I don't think anyone anticipated was as assets came into hedge funds and hedge funds were growing at a fixed management fee, the cost of acquiring talent went up because larger and larger hedge funds …”

“The active equity world that people are still comfortable with charges egregiously high fees relative to true value add, and it makes the 20% hedge fund fee, if it's appropriately calculated, actually a fair deal.”

“In the early nineties, Yale systematically went out and imposed cost of capital hurdles on their managers, and managers who understood those economics, most of which did, they were the beneficiary of it would do something reasonable because the supply and dema…”

“The difference today with 20 or 30 years ago is the opportunity cost is much, much higher. So that, that talented person that might be able to get 20 or fifty million dollars and therefore get three or four or 500,000 dollars of management fee income can get a…”

“I think that the default to have an allocation of hedge funds in a portfolio probably doesn't make any sense.”

“So I think what you're likely to see is 10 years from now, there'll be an active management fee on the long side. And the hedge funds that are charging a 20% incentive fee, they're really going to be charging a fee on what's truly value added.”

“When protege started You didn't really have a lot of people that had experience as hedge fund portfolio managers, so oftentimes you'd have someone spinning out of a big hedge fund in quotes, then big probably, the largest were probably one billion dollars in a…”

“And even if you look at the academic data that consistently maligns hedge funds, what you find is that for whatever reason, this universe of hedge funds on a gross basis adds value. And far more value than the traditional long only does on a manager by manager…”

“If you looked pre-crisis, the fund-to-fund investments in hedge funds constituted something like 50 or 60% of all the industry's investments in hedge funds.”

“In my 14 years at Protege, we seeded about 40 different hedge funds.”

“If you want to go invest in the Two, three, five, ten billion dollar hedge fund today and be the next marginal investor, you're always a price taker. But when you invest early on, you have the opportunity to be a price maker.”

“To give you a statistic, rolling three-year performance periods for hedge funds, correlation between different rolling three-year periods is about -.15.”

“Most of the funds that do best by their investors aren't necessarily the ones that grow to be the biggest. They're the ones who care most about performance, not business growth.”

“In fact, the established firms moved from commission business to trading businesses, trading against their customers, really. The prop desks became established. And then subsequently, as volume exploded, as, in fact, commission business could work. The prop tr…”

“Hedge funds for clients that are taxable versus non-taxable because hedge funds generate enormous amounts of short-term capital gains to ordinary income.”

“We tend to be more in relative value and arbitrage type strategies. The beta is down around a .3. So it's not a big, heavy equity presence there. We don't do much in macro. The binary bets of up or down are less appealing to us.”

“It'll be between 40 to 50% illiquid is, is pretty comfortable. And then you have that area in the middle that is hedge funds. So there's about 40 to 45% that are really public market. And then you have that hedge fund semi-liquid stuff in the middle. And then …”

“Linda at the time didn't believe in hedge funds. The private equity portfolio was 10%. That was it.”

“The big institutional wave into hedge funds began after the 2000 to 2002 drawdown because so many funds, as we've talked about for a long time, were prescient enough or smart enough to be long value and short growth, and they survived 99, and they put up absol…”

“And I know this is not the greatest thing to say, but being in the hedge fund business for all these years, it's interesting how few hedge funds I give money to. And it's not because I don't want to. It's that the market's gotten more efficient. There's a lot …”

“If you're a three billion dollar foundation, hedge funds can work for you. When you're a three hundred billion dollar governmental pension funds, not so much. Context is everything.”

“Some of our local peers here in superannuation who have to compete for members have decided to go down a road of setting a fee budget for the whole fund, and then reporting those fees as a competitive advantage in their marketing, and we think that risks cutti…”

“You know, there's not that many traders on the street today that have that kind of persona because they've all gone to hedge funds or done other things.”

“A graph of tenure yields going back 40 years. And the reason I keep it there is that it looks like a ski slope, right? It goes from 14% down to where it is today. And there's been some gyrations, but it's basically, I say this to all my contemporaries, like no…”

“It dwarfed what we expected by a factor of five. And so, it's really hard to create a lot of active alpha when there's that much money in the space, and when a lot of the similar approaches, we're now almost on third generation, meaning, like, some of the earl…”

“That's where in places like Korea, where it's a huge equity market and you can count the number of good hedge funds on one hand. So we think it's a secular play. That's why we built a business there, a hedge fund business there, and we expect to be there indef…”

“In our hedge fund portfolio, we have 10 positions. And we think that 10 positions is about the right amount of diversification. It's about the maximum amount of diversification in order for us to be able to monitor and manage and understand and know those hedg…”

“We invested in a hedge fund that was a low volatility hedge fund that had an outsized position in it, which I failed to identify during due diligence. It ended up costing the portfolio something like, I think, 40 basis points at the top line. So not a big deal…”

“Well, we are targeting very high potential return hedge funds. High risk hedge funds. We're not looking for three percent fixed income substitute. We're looking for Even more than equities and even less equity beta and even more diversification.”

“So the strategy by and large was in place, and it was A hundred percent alternatives. That portfolio was in place, that strategy. It was 80% hedge funds and 20% private markets funds, mostly venture.”

“Three billion dollars of capital is not the same as a three billion dollar private equity fund. And so as quickly as that goes up, even if performance isn't bad, it was primarily European fund-to-funds money, and that, that was a piggy bank very quickly”

“Well, let me tell you create as much of a problem as you solve by having a brand grow up around one person, and we are hired, especially in private equity and hedge funds, many times because the brand has grown up around one person, and they create a successio…”

“Negative performance almost always leaks to the press, so it's how do you deal with that, and how do you contextualize that, and how do you put forth the data about the performance over time, right, so that the reporter actually gets the story right, and it's …”

“Do I think they'll be successful at building institutional brands that will survive into the future? Yes. I think there will be a handful that does, and there will be all kinds of other peril in the ones that don't.”

“I mean, we must get five calls a week from hedge funds saying, I gotta go from the back foot to the front foot. I gotta learn this stuff and take it seriously, and what do I need to do?”

“And the reality is when you're small, no one really wants to talk to anyone except the PM who's driving the strategy.”

“If you look at the dispersion between, in particular categories in the hedge fund space, it is much, much larger than the dispersion in traditional markets, like long only, for example. You'll see a much tighter performance band in the traditional asset classe…”

“When you start one of these things, you need to be a great investor and a great entrepreneur. Because at the end of the day, you're building a business and you're building a business that then competes with some of the smartest people in the world.”

“We did an analysis two years ago, I want to say. Where our hedge fund analyst was tasked with pull all the financial documents of every one of our hedge funds and figure out what fees we paid. And we're going to go after the people that we paid the highest fee…”

“One thing that I've told people, I think it's become more difficult to launch a hedge fund now than probably ever in the wake of the 2008 financial crisis.”

“I think that means as of now, kind of the big market leader is in the big brands like the millenniums of the world have a pretty big edge because the person who wants to raise a hundred million dollar fund has a very difficult time doing that themselves, but M…”

“They're trying to find mistakes in markets and correct them. And I think that's actually a pro-social idea.”

“So the old two and 20 Charging every year, forget it. That game's over.”

“If you're halfway there, there's half as many shares being sold into that news event than there used to be. Or, like, way more cynically, there's fewer dumb decisions being made in one part of the world That can be profited on from the other. And at the same t…”

“It was clear to me that it was not the direction of travel in the Federal Reserve System at the time to give new banking charters to anyone. But if they were going to give them to anyone, it wasn't going to be somebody whose pedigree said, hedge fund, private …”

“I had spent enough time as a salesperson looking at the hedge funds. And I just thought that the industry was ripe for the same type of disruption that the mutual fund industry went through in the nineties with exchange traded funds and that the hedge fund ind…”

“In fact, last year I would say was the worst year for risk mitigation from the hedge fund side. The alternative beta products that people had jumped into did not perform the way most had hoped. The CTAs, which traditionally have helped during years of big fall…”

“If you look at hedge fund returns back to August of oh seven, which was when the quant unwind occurred, if you look at the overall returns of hedge funds, and you just look at any measure there's barely any returns, if any.”

“The demands to start a business today and a hedge fund today are, I think, just harder than it's ever been. I think what's changed is a few things. One, the institutional demands on the business side. So the days of just kind of hanging a shingle, investing, m…”

“I think that you should divide the investing universe into like sensible things and ridiculous things. And like, you can do ridiculous things and like ridiculous things, like most things, sensible things, like index funds, right? You want to do like hedge fund…”

“So we view hedge funds playing that role rather than protecting the portfolio from The volatility of equity markets. Our unlisted assets have that role.”

“And yet some of these managers who I think that if you were to ask me, especially on the hedge fund side, if there was one characteristic to predict a successful manager, what would it be? I'd have to say is, are they willing to return capital? Because are the…”

“And so people that just short the indices and call themselves a hedge fund, by definition, after fees, you can't beat the market.”

“We want a fair sharing of the alpha, meaning we think asset owners should get 65 to 75% of the alpha, at least, and that it's fine for the manager to have 20 or 30%.”

“What I would say is hedge funds is an asset class not worth the money. That said, there's seven, 8000 hedge funds. We think there's a hundred to 200 that actually do merit institutional capital and continue to merit institutional capital.”

“What is different about our portfolio is we don't have a hedge fund category. So we run a risk management system and hedge funds just never fit into the risk management system.”

“What I'm excited by there is not necessarily like the next best data source, because they tend to be very perishable. I'm excited about different tools for those hedge funds that are trying to make predictions in complex systems.”

“So we allocate to 20 external hedge funds We allocate to over 90 external and private equity funds, and internally we have 28 portfolio managers and 17 kind of strategies or netting units”

“I think I wrote a piece for Business Week years ago, in which I said that hedge funds are not an investment strategy, they're a fee structure.”

“The best way to do that was actually to invest in smaller funds because hedge funds inherently oftentimes are capacity constrained strategies.”

“I think that it's probably fifty-fifty if you had a good hedge fund portfolio versus the market for the next 10 years, but I would never make what I thought was a fifty-fifty bet in public with Warren Buffett.”

“There is reflexivity in hedge fund organizations from investment returns. So if a hedge fund is not performing well, they could lose good people to other organizations, which makes it more difficult for them to perform well in the future.”

“I mean, I think the default to the answer to that question, the default is no. The default is the average retail investor probably should not be investing in these strategies.”

“In general, across the industry, for long periods of time, last 10 years, there is no alpha in the short positions.”

“And back at that time, Alpha was obviously easier to earn, fewer competitors, much smaller amounts of assets. You know, hedge funds in the eighties and early nineties were, some were large, some might have been multiple billions, but most were less than a bill…”

“I don't actually think clients understand that one of the things they're doing in that case is accepting leverage and the risk that comes with leverage, which is very hard to quantify.”

“We look at the world in four asset classes. So global equity, global fixed income, real assets, diversifying strategies, which is the catch-all for everything with a beta .3 or less, but it kind of becomes this catch-all for everything that doesn't really fit …”

“Yes, we have a portfolio that Currently is heavily weighted to hedge funds and hedge strategies and private markets.”

“Some asset classes may be harder to implement, like in hedge funds, where, frankly, we're not seeing as many offerings to date, but we're seeing some new products being formed, and we're going to assess those.”

“I think if you're trying to compete quarterly against the machines, that's a tough place to be. So you need to be able to take a longer term view.”

“Your excess returns are going to come through Timing, asset allocation, and then leverage. Timing's the hardest. It's what hedge funds basically are asked generally to do, and I think we can all agree with the number of managers that exist today, and then they…”

“Most Hedge funds, private equity firms, small ones that start to grow, recognize that they have growing pains, and that their expertise is limited to investment, and they really don't know how to create an organization, how to create team culture, how to both …”

“And in many cases inside places like hedge funds or private equity firms or other places where allocators would invest, there's a high degree of respect on skill and a low degree of respect on character. And that creates division inside those teams.”

“We went around and analyzed investor portfolios, and believe it or not, Ted, despite some of the world's largest institutions being invested in hedge funds and other types of alternative products, they were paying full fees. The overwhelming majority of the in…”

“The irony, of course, is that a crowdedness of a short Is a sign that it's a good short. Ah, it's going to go down, because smart money thinks you should be short. But, crowdedness of a short causes it to be much more volatile in the market. And when you get t…”

“Although you need a certain amount of size to have critical mass and pay the bills, beyond a certain level, size is most of the time a disadvantage. And so it's a sadness to me in a way that there are so many barriers to entry now and that it is getting more c…”

“In order for us to be a better evaluator of talent, we have transitioned a big part of our program in edge funds onto managed account platforms.”

“The problem we've had in the last 15 years really is the whole rate structure fell, which brought sort of the two 20, not no longer the right fee structure.”

“From our standpoint, one of the variation that we brought, which is in parallel to what Luke said, was the fee structure, which is X or Y. So we pay 1.5 or 15%, depending, instead of 1.5 and 15%, which actually helps us capture the portion of the alpha that's …”

“The days of talking about 10,000 hedge funds are over. I don't know what the right number today is, but the reality is that probably there's a thousand credible hedge funds out there, and the top hundred have a significant proportion of the assets.”

“You get some investors who say, look, you should never have a management fee on a hedge fund. And I can understand why, from an investor's point of view, that might feel good, but actually it's not good from the long-term health of the business, because if you…”

“Right now, I'd say we only have four, what you'd call traditional hedge funds in the whole portfolio.”

“Because essentially you're an index fund on both sides of the market with an expensive active management fee structure on top of it. And the fee structure is problematic in that it guarantees you always do worse than the average, right? So you're essentially i…”

“When I left, we were in the process of hedge funds, as you know, really were struggling. We were at the process of ratcheting down that exposure and instead building the cash back up because we just didn't see if there was the opportunity for the risk we were …”

“Hedge funds had to have no market exposure, and to the extent that we were still in traditional managers, we hedged out their beta exposure to match what we were targeting.”

“We did a ton of research on liquid alternatives, hedge funds, all the different asset classes. We kept coming back to private equity as an area that we felt was enduring, that could improve our client outcomes”

“We all know the Nkubo databases and looking at the largest endowments and foundations versus the mids and the smalls, private equity and hedge funds in general have not worked out really well For those below the top 10% AUM mandates.”

“Maybe 10 or 15.”

“We have almost 40% of our portfolio in hedge funds”

“Where a hedge fund is operating from the outside in, we're operating from the inside, and it's just a much better way to invest. I've always been a big believer that private equity is just a much, much better business than the hedge fund business.”

“More firms and private equity alternatives, hedge funds, asset management are getting into what I would call sophisticated marketing and reputation management. And that's been accelerated by COVID too”

“There's alpha, which we really refer to as hedge funds that actually hedge. Most hedge funds don't. Most hedge funds give you more like the first category and they charge high fees and they lock you up.”

“Alan's deeply knowledgeable in this space. He has all kinds of investments throughout the ecosystem and is probably the earliest hedge fund person in this space.”

“This initial wave of institutional purchasing has been concentrated in hedge funds. And in corporate balance sheets, the few very big corporate balance sheets.”

“You don't see that in a lot of hedge funds. The notion that troops each versa, you've got to take care of the people at the bottom of the pyramid to make sure everything works.”

“Everyone I know doesn't think that a portfolio of hedge funds, generally speaking, will get them the returns that they need for their portfolio, but they do believe that their hedge funds will get them there.”

“We're buying market neutral hedge funds because on a risk adjusted basis, hedge funds are still pound for pound the best alpha generators.”

“I think private equity is where hedge funds were like a decade ago or so, right? It's a very more networking type industry. You kind of sign up. I think private equity and the private asset classes are going to institutionalize and mature going forward. I thin…”

“The quality transition is usually got some M&A component to this. By the way, hedge funds love this. Why? Because it's highly idiosyncratic. It's a But it's very, very low prediction environment, and what I mean by that is there's lots of variables to get this…”

“With a 120 trillion dollars, their capital flows out into the hedge funds, the mutual funds, the private equity funds, the venture funds.”

“What was really hard to do was to get all the data unified, to get it into the system. It could take six months. It's like when you said at Yale we had all this data. It's a huge lift to get this stuff out of The custodians, out of the general partners, out of…”

“In the case of public pension funds, yes, like you'll have actuaries come along and do a pretty rigorous Examination of the liabilities. They'll tell you what your asset allocation strategy would be, but then it gets complicated because the assumptions underpi…”

“A lot of the boards of directors think they're protecting their organization from failure by telling their teams they can't do first time funds, or they can't invest in hedge funds below a certain AUM, which is another way of saying you can only invest in fund…”

“I think there's a lot of investment professionals at these organizations that believe that if they reported it to the stakeholders wouldn't let them pursue the strategy that they believe in their heart of hearts is needed to meet the obligation of the plan. So…”

“The big one is how so many market participants explain the market as if it's true. So for example, when they say, well, the reason this time is not good for IPOs is although the market is up, that's the secondary market, but the primary market is struggling ri…”

“A hedge fund at its core is not supposed to absorb volatility. It's supposed to be able to trade volatility and make money even in periods of volatility.”

“And in fact, the hedge funds that bought the stock in Opco were all hedge funds who had debt positions, who were benefiting for the release of that guarantee.”

“So in venture, the advantages might be around personal brand, firm brand. On the buyout side, it might be really around their ability to add value post-close. And on the long only or hedge fund side, it might look, it might be much more around their approach t…”

“I think that we'll see a big shift in succession, whether it's in public or private markets, hedge funds over the next five, 10 years, where that generation is now moving into another cycle.”

“For us, it became very important to calibrate well here because we have an overlay program. It's not a funded program. So we use our balance sheet to invest in hedge funds.”

“When you're in a services business or in the investment business, It's a relatively short-term game. You're in a hedge fund, maybe it's a one-year game, or maybe it's a quarter game. When you're in a banking deal, it's a transaction. When you're building a pro…”

“The way we look at this in the hedge fund is we have eight to 12 positions that drive the vast majority of returns, and it's really a best ideas fund, and it's quite concentrated.”

“I got down there, and they had 55% in hedge funds, and it was going higher. Almost nothing in loan only, and the rest in privates.”

“The best investors in the world are generally running structures where they can get paid the most, where they can have the most creative freedom, and where they can attract and surround themselves with the best talent and the best investors, and that, that mom…”

“If you own a piece of a hedge fund in two years, you're either just doing incredibly well or you're out of business. There's really not a lot in between.”

“And as there became more and more adoption of those assets and asset classes, You know, what you would expect happened. Returns came down, whether you were trying to do individual deals or make investments in those spaces, or whether you were investing in mana…”

“And with hedge funds, the ecosystem revolves really around prime brokers. If you're a hedge fund, you need a prime broker. So instead of having to go out and talk to 9000 hedge funds, we can start by talking to the prime brokers and ask them who's launching in…”

“What I find is when you're in the heat of battle, it's very hard to like zoom out and say like, why are we fighting this war? Right? Zoom out because you're just in it. And that career path, private equity, hedge funds, you're in the heat of battle constantly.…”

“So having the right expectation of what role it's playing in the portfolio, I think is really crucial, as opposed to the said equities, it should outperform equities. And so at that point, you know, after a decade plus of underperformance relative to long earl…”

“Shorting's hard. It's very difficult to do behaviorally. It's very difficult to generate returns consistently. The returns are very episodic, so oftentimes people just give up at the wrong time, but I do think there's an inefficiency that can be exploited on t…”

“We are right now, we have an allocation to hedge funds, which is just below 20%, say, 18, 19%.”

“A hedge fund is not an aspirational investment for the LP. It is definitely an aspirational investment for a GP. Similarly, private equity, it's definitely aspirational for the people who own the firm. That's a mathematically correct statement.”

“Now, when I look at my portfolio, our ideas are so different than other people's ideas. I've went through my top 10 longs. Very few hedge funds would have any of the names I have in the top 10. The same thing on the short side.”

“That is when, to me, private equity, private markets established themselves. It was the greatest thing that happened to the industry. And I know people will go, that asshole, what's he saying that for such a horrible time. But it's because at that point, every…”

“The larger firms generally know what their exposures are because they have risk management teams who are looking at these things. The smaller firms are much more gut-driven in general in terms of managing risk, and they are sometimes surprised.”

“And the reason why there's quote unquote back trading is because it changes over time. The size gets bigger, the talent changes, the person sitting in the seats change, and it gets very, very difficult. And that's why it leads to turnover.”

“There's an amazing opportunity to Continued for spread for long alpha for short alpha for gross alpha with a moderate net or a reasonable net. It just doesn't scale.”

“I think the drawdowns that we've seen are because Hedge fund longs are on average down 50 or 60% in a market that's down 30, and shorts either don't exist, or the shorts are down like 10.”

“VCs are always advising founders of businesses, get a partner. You don't want to go through this alone. It's lonely, but LPs are always advising hedge funds. Don't be a multi-manager. Don't have partners. It gets complicated. And so it can be a very isolating …”

“You read about a hedge fund that makes big, big money, but hedge funds by and large are risk reduction, wealth preservation type vehicles when done well.”

“Unlike in, say, venture capital, the ecosystem around hedge funds has no information base of entrepreneurship, because if somebody starts a successful hedge fund, they never start another business, so there's no opportunity to say, I'm a serial entrepreneur in…”

“The names that the broader market thought were good, there was an infinite supply of those names. The names of the broader market thought were not so good. There was less of a supply. So the guys that almost got too smart for their own good, they were focused …”

“When you start something, you can dub yourself whatever you want. And either people give you money or they won't. But one thing I've learned in the 12 years, it's very hard to then change. You can claim anything you want to claim. But afterwards, if you try to…”

“Emerging markets is not a good buy and hold marketplace, but between being macro informed, more alpha opportunity, more short opportunities, it's a good place to own hedge funds.”

“And a big, big macro hedge fund at the time would have been three to five billion. And there were only two or three or four A billion dollar, what I call micro hedge funds, focusing on corporate actions, and Baker and I was one of them.”

“If it's too much hedge funds and hedge funds have a bad time, all these positions become correlated.”

“We underwrote that every hedge fund could get eight to 10% net every year. A bad year was eight, a good year was 12, and that was it.”

“I just think it's an expensive downside. We talked about my best downside is, is structured long US dollar. That's actually a positive carry. It's not costing me one in 10 to get that downside capture. So I just, I can't get past the fees.”

“Absent capital C cause gross negligence, you can't remove a collateral manager. You can always sell your security. By and large, the vast majority of CLOs Have these ironclad contracts, which in a private equity fund or a hedge fund would not be tolerated.”

“We actually have a difficult time going to a hedge fund or hiring somebody that doesn't stress very well laterally as a partner. We equally have a challenge. We go to a growth equity firm, somebody that understands to say, you know, healthcare is really well, …”

“It's very hard to include a hedge fund strategy, even if it has a very high sharp ratio or risk adjusted return, if the total return is only three or four percent. But now that we've hopefully cleared that threshold, at least from an expected perspective in mo…”

“With short rates going up, especially in the long short equity space where people are earning short rebates now of call it four to five percent macro strategies where people are earning that on unencumbered cash, really without any skill, the manager is off to…”

“We believe that there are way too many hedge funds. I don't think that hard to identify a lot of firms that have no reason to exist.”

“Most investing, you start by thinking about what the opportunity of the investment is. In this case, I think you want to start it with the risk culture framework and setup of the business model itself. So what does that mean in practice? If you're dealing with…”

“I guess this is ironic because in the public markets, we ought to have the same amount of information, but it's much harder to replicate a public manager's knowledge base. When they see edge in a public name, they're talking about the primary research they did…”

“So typically they'll know stock picking, but they won't know portfolio construction. They might've not had a lot of experience to trading. They probably wouldn't have managed a lot of people before.”

“We don't have a lot of hedge funds in the portfolio.”

“There's something wrong with the U.S. Economy if Rhodes Scholars are coming to work at a hedge fund”

“I want to grow responsibly, recognize the fact that the graveyard Of hedge funds is filled with hedge funds that did what we did and got too big and to grow with discipline in a way that allows us to continue to maintain the culture that has contributed to our…”

“Roughly 80 of those are sub two billion in AUM today on that list. A little more than two dozen of those, I think, are below five hundred million in AUM.”

“I think of the 240 today, a little more than 50 came onto our approved list within the first two years of their life.”

“There's approximately 240 hedge funds on that list today. Frankly, larger than we would prefer, but at any point in time, 20 to 30% of those are closed due to capacity issues.”

“We've got specialty advice and implementation capabilities underpinned by research across private equity, private debt, infrastructure, real estate, and hedge funds. And actually they're each about 20% of our AUM.”

“Hedge funds are the least liked asset class by the rice board”

“And I always thought in hedge funds, you back them for their returns, but in private equity back for their character, because in a 10 year locked up fund.”

“A lot of the emphasis, be it private equity or hedge funds, in the initial five years of one's career is bottom-up. And that's a bit commoditized. People now know how to use a spreadsheet. People know how to read 10 Ks. You're not gonna make better assumptions…”

“And often now with high borrow costs and all hedge funds shorting the same names, you end up paying a lot more than you would have previously. So you're running a negative carry game where time's against you.”

“Now, I would say the one thing that I found that is dramatically different Is the cash flow liquidity piece. That I think is very tricky to get that right. That takes a lot of thought and a lot of anticipation and forecasting and thinking through how you're go…”

“I think in my year, 800 people graduated HBS. I think, off the top of my head, I think roughly two went into hedge funds.”

“Almost every instance of a hedge fund lasting beyond its first generation has followed a business strategy that expanded beyond the manager's initial product offering.”

“I don't think there's any strategy that we don't do other than long biased. So we do have long short equity hedge funds. We do have macro funds. We have quant funds. We have multi strats. We have some relative value. And then we also do a little bit of special…”

“So we have a very distinct way that we use them, which is portable alpha. So we do not actually, and you'll notice when I gave you the allocation, there were no hedge funds in there. It's because we actually think of the hedge funds as almost an overlay. So we…”

“I think if we were a fast-twitch Hedge fund making multiple decisions every day on trading, it wouldn't work. You'd need single points of decision, whether there's a number of them or one of them, but we don't make a lot of decisions.”

“And the pain, from our perspective, of them being right and us being gone is much more than the pain of six more months of it was mediocre.”

“One of the problems with hedge funds is that they have to frequently manage to Not just quarterly reports, but monthly reports, or even weekly and daily reports. So they've got to show that they're staying with the strategy that they have outlined for their in…”

“I think there's increasingly a view that some component of hedge fund returns are known inefficiencies, and, you know, could be inefficiencies in the commodity market, et cetera, that are not extractable, and you shouldn't pay two in 20, and maybe not even one…”

“And so we measure that stable value hedge fund portfolio versus a cash-like benchmark plus a spread. Then we measure that directional portfolio versus a full beta long only equity benchmark. And so we overlay that portfolio with derivatives in order to achieve…”

“So we have 11% of our portfolio in hedge funds, and that's in addition, by the way, to that 38% of private, so total alternatives is 49%, which again is quite high for a public pension, but quite low versus the endowment community.”

“In venture, you can make the right asset allocation decision, but if you can't get the best managers, or at least the top quartile managers, it's not going to matter. It's not going to deliver. That's most true in venture, maybe a little less so in buyout and …”

“And I don't know, there are, at least in my opinion, maybe a dozen hedge funds that really matter today.”

“Many of the endowments were invested heavily in hedge funds that shorted the tech rec in 2001.”

“Even if Yale wants to continue the relationship, the fifty million dollar commitment is subscale for most strategies. An early stage venture capital or small cap public equity manager may be ready to roll with fifty million dollars, but managers of real estate…”

“And I realized then that hedge fund investors want you to beat the market, and they want you not to lose money. And you cannot structure a portfolio to do both of those things at the same time.”

“We go back to July of 2014, and that's the portfolio. 30% privates, 40% hedge funds, 10% cash, borrow 50%. You've got this other 20% funded stuff in case you've got a liquidity event if you really need it. That's what the portfolio looked like back in 2014.”

“If you think about private equity, it's a nine trillion dollar industry, hedge funds, three to four trillion dollar industry.”

“A lot of clients have been allocating to hedge funds for diversifying strategy that can give you a high sharp ratio, no correlation to market risk, et cetera. That part of the market has grown dramatically over the last 10 plus years, and at the same time, The…”

“I think of it as the purest form of active management that exists in our industry. There's clarity of what you're trying to do. There was Indexes in long only that created inefficiencies and things that you had to do that weren't necessarily in pursuit of alph…”

“I think that's different than certainly most other folks who just say, oh yeah, we're going to allocate to hedge funds. We've never allocated to hedge funds.”

“You need a risk manager at a hedge fund, someone who oversees all of it and understands positioning and is willing to take trader's To task. One, you need to have the right person. Two, you have to empower that person.”

“So you had the growth of the alternative investment business, and they tried hedge funds, but when the hedge funds got too big, they stopped performing, most of them, and then people fastened on private equity.”

“You are starting to see some hedge funds think about private credit, and you are starting to see some hedge funds think about longer lock vehicles. So they're kind of getting into certain aspects of private markets that a larger multi-strategy alternative asse…”

“You'll see our wealthier clients have a larger percentage, more than eight percent usually, to the alternative space, more heavily focused on private equity than hedge funds. That's been a flip. 15 years ago, that was all hedge funds. Now it's mainly private e…”

“We went from a period in 2014 where we made a strategic asset allocation shift downwards in hedge funds as we thought that rates were going to stay lower for longer. So our strategic asset allocation is 10%. We had negative flows for a period of almost seven y…”

“If you asked us 10 years ago, the funding source for most hedge funds was equity, and that's completely shifted. Even in our portfolios, the funding source is fixed income.”

“I think you're seeing on some of the more long only, but disguised as hedge funds, that the fees are coming down. With returns coming down, people are starting to push back. You're seeing a lot more zero and 30, more alignment where you're not going to be able…”

“People read the book and see all the success Yale has had in the private equity world, in the hedge fund world, in places where manager selection is really by far the most important factor in success.”

“What's happening in infrastructure and properties, the big funds, rather than doing that, they're internalizing, as you pointed out, and that is creating pressure on the industry. And that will force change. And I think the same is true in equities and hedge f…”

“So we have a couple of hedge fund strategies that really are sort of volatility traders or tail protection type mandates. And if we had diversified hedge fund portfolio, and if the person running that or the team running that were incentivized just based on th…”

“Some of our local peers here in superannuation who have to compete for members have decided to go down a road of setting a fee budget for the whole fund. And then reporting those fees as a competitive advantage in their marketing. And we think that risks cutti…”

“And I can say the median private equity fund probably does a little bit better than the market. The median hedge fund probably doesn't get you that much. The median real estate fund probably gets you some beta of real estate.”

“Every industry as it matures gets concentrated into winners, and then some losers, and then specialists that have a place but are smaller. Saw that in hedge funds, and you're going to see it in private equity. There's going to be a shakeout of what's called th…”

“You had this one and a half and 20 And the net returns were 10 to 12, and everyone was happy, and when they got to be six, all of a sudden, people have scrutiny. I think that's the concern with private equity today.”

“One of the funny things about the industry is everybody looks at somebody at a private equity firm or Citadel or a hedge fund or long-only and thinks they're so different. They're the same people. They're just moving around seats.”

“That doesn't really exist anymore in broad strokes. It's been diced up. You've got the distress funds, you've got the pods, you've got some single managers left, but there's not so much capital going to broad opportunistic mandates. It's become more specialize…”

“There's very low barriers to entry in the investment world. So big alpha pool, highly, highly remunerated profession. Hedge funds on the front page of the newspapers, TV shows about them, houses in the Hamptons, all this great stuff. What happens? People come …”

“What I took from it is, look, it doesn't seem like a coincidence to me that a lot of the best hedge fund returns in history were created from the late nineties to 2010 when that alpha pool was really big.”

“We are raising the bar, for sure, as any technology that is introduced into the investment process, now everybody's able to do things much more quickly, efficiently, and move more in an agile way, because the research can be applied to so much more that you, i…”

“We don't pay carry. We don't have the same pay structure as a general partner. We don't pay promote, so we don't have the same pay structure as a hedge fund.”

“In almost all the cases, though, it's an apprenticeship business where you've trained at a good firm. You've been shown what good looks like from a research perspective, and most importantly, from a portfolio management perspective.”

“Some of the benefits that we see, one is you're generally gonna get better economics, so there's gonna be some form of founder class shares that you can participate in, whether that's a fee or a carry discount or both, both of those are available. Generally, y…”

“Back in the day, risk arb was an amazing business. It wasn't five percent. It was 20%. I was thinking back about, God, I wish I knew what I know now then, because having a market that could produce those rates of return by being one of the few participants is …”

“If you looked at the amount of money allocated to hedge funds post the crisis, for the next three, four years, 95% of the dollars allocated to hedge funds globally went to hedge funds with more than five billion dollars.”

“Actually, there's no chicken and egg. It's just a chicken. You have to build it all off your own balance sheet, and then the money comes in. That's a barrier to entry that you have to get through.”

“Hedge funds are fragile, and the smaller they are, the more fragile they are. I do think it's becoming a scale game, and that was very important advice from Mike. So if you have a diversified business, it makes it a lot easier to be rational when you're wrong.…”

“There's no difference except for the risk, but the same principles apply. If you're good at buying stocks, you're going to be good at shorting stocks.”

“If you're going to run with an unlevered long book under a hundred, then short alpha is irrelevant. All that matters is your shorts must make money. Full stop.”

“Many committees are a nearly impossible task where, particularly in the endowment business, colleges, because rich graduates who've made big donations, Would love to sit on the board. They are treated with kid gloves because they're wonderfully good at making …”

“Our average hedge fund relationship is 10 plus years.”

“The average hedge fund out there, down the fairway hedge fund, us dumb pensions did the wrong thing by incentivizing them to run lower vol and take in more assets and collect that management fee.”

“When we're investing in hedge funds, if you don't have extreme diversification, you're doing things in a cash inefficient way.”

“Fees, I think what's the biggest problem in hedge funds? They charge too much. There's only so much juice in the game. These are efficient markets. It's not like seventies. Buffett can do whatever sitting, reading Moody's manual and pick up stock two times ear…”

“Today, our target allocation across our long, short, and absolute return portfolio is 27% in aggregate.”