The Ledger
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Exposure management detracts ~200 basis points annually from hedge fund returns
“Exposure management, on average, that tracks approximately 200 basis points a year from a manager's performance.”
Sample size predicts manager performance persistence better than time periods
“And so when I think about persistence, I think about it in terms of N, not in terms of T. So I think about number of observations as being a more important predictor of what will happen in the future than whether or not there's consistency in T.”
Severe liquidity deterioration when scaling AUM is fatal for fund managers
“And the first two, while they're about deterioration, the last one, liquidity deterioration, is about being in business. And it's the only fatal one of the three choices. And so, for example, I've yet to see a manager that has experienced a significant liquidi…”
Allowing hedge funds double the volatility could more than double returns
“If we could just let our managers run with twice as much of all, I think we'd probably get more than twice as much return.”
Skilled position sizing can add 900 basis points annually to returns
“And some Managers generate something like 900 basis points a year of excess return to their equally weighted portfolio.”
Hedge fund rolling three-year performance periods have a -0.15 correlation
“To give you a statistic, rolling three-year performance periods for hedge funds, correlation between different rolling three-year periods is about -.15.”
Crowdedness outperforms over time but poses extreme danger during market reversals
“Actually, crowdedness is a factor outperforms over time, but it's extremely dangerous if you're not paying attention to it.”
Allocators overly anchor manager assessments on trailing twelve-month performance
“Much of it really centered around the individual portfolio manager, the quality of that portfolio manager, the quality of the team, the quality of the process, the edge, but it often was highly linked to the last 12 months performance. We'd anchor off of that.…”
Allocators holding 5,000 equities have very little chance of generating alpha
“If you did a look through analysis in Allocator, and you owned 5000 equities, and your top 10 were nine percent, There was really very little chance that you were going to generate substantial alpha over the S&P, right?”
Some hedge fund managers generate two-thirds of their returns intra-month
“We know, for example, some managers that add two-thirds Of their value from a return perspective, intra-month.”
In 2015, 150 hedge funds owned 70 days of Valeant trading volume
“Valiant was at one. Valiant had a 150 or so hedge fund managers, and in aggregate, they represented 7000% of average daily volume. So, 70 days worth of volume was represented by a 150 managers.”