The Ledger
Every statement that passed quotation and attribution checks. Mix any filter with any other: certainty 1/5, debate potential 5/5, or both at once.
why aren't all 20 resolved? a statement only gets an assessment when the public record can support or contradict it. opinions and what-ifs never can, and 0 checkable ones are still open, waiting for their date. predictions held up or didn't; assertions are supported or contradicted. on every card: ▮▮▮▮▮ certainty · ▮▮▮▮▮ debate potential. speakers are clickable
Kraus: Passive investing and high-frequency trading do not create price discovery
“Passive models do not discover prices. High frequency trading trades around prices, but it doesn't create price discovery. It creates liquidity, but it's not price discovery. It's not determining value.”
Kraus: Hedge funds generated no alpha in short positions over the last decade
“In general, across the industry, for long periods of time, last 10 years, there is no alpha in the short positions.”
Kraus: Asset management fee structures reward market beta over true alpha
“The whole motivation of the business, the way the fee structure is set up with the way portfolio managers are paid is all based on asset flow and growth. And unfortunately, while We thought that performance-based managers were really based on performance. They…”
Kraus: Nearly all ETFs outside US large cap trail their benchmarks
“Virtually all ETFs, with the exception of US large cap, actually earn less than the index. There's friction cost. Security lending doesn't overcome all the friction cost. Can't always buy all the securities.”
Kraus: Concentrated portfolios produce better returns than diversified ones on average
“Are concentrated portfolios better than diversified portfolios? Yes. Is it a panacea? No. But on the whole, concentrated portfolios produce better returns, much more volatile.”
Kraus: Active management will keep losing assets without performance-aligned fees
“We need to have a level playing field where active managers can compete with passive and get paid for their performance. Because if they don't, I think over time, active is just going to continue to lose money, which has been the case and continues to be.”
Kraus: Giving Portfolio Managers Unconstrained Mandates Outperforms Constraining Them
“Another thing I found in my career is that allowing managers to be unconstrained is far better than constraining managers.”
Kraus: Clients Misunderstand Leverage Risk in Long-Short Hedge Fund Strategies
“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.”
Kraus: Performance fee deals fail if managers maintain mostly fixed-fee assets
“If the portfolio manager is managing 90% of their assets in fixed fees and 10% of their assets in performance, it doesn't actually achieve that.”
Kraus: Most asset managers are business-building index huggers, not risk-takers
“Oftentimes the managers in the industry are actually not risk takers. They're constructors of an index-like portfolio against an index. They're attempting to build a business. They're more businessmen than they are portfolio managers. And they aren't really co…”
Kraus: Few analysts have the engineering and trading skills to run portfolios
“So you need to be an analyst, an engineer, and a trader. The number of analysts that can become an engineer and a trader is small. The ability to identify an analyst who actually can be successful being the trader and the engineer is very difficult to the poin…”
Kraus: Real-time decision monitoring yields higher allocator conviction than historical track records
“When you watch somebody perform, meaning they tell you why they're buying something, what the thesis is, why they're weighting it that way, why they're selling something, then you can actually see, does that play out? And more importantly, you can see when it …”
Kraus: Portfolio managers are perennially bad people managers
“And by the way, managers are perennially bad man, people managers. I mean, that's not what they do. They're introverted. They're not very outgoing. They're highly analytical and the people around them are exactly the same.”
Kraus: Goldman Sachs partners received equal compensation across different specialties
“What was really curious to me about Goldman Sachs was, Goldman Sachs allowed people to specialize, and they compensated the different specialties equally. So at the partnership level, I mean, if you became a partner, you could be a corporate finance specialist…”
Kraus: Alpha was easier to generate in the 1980s and 1990s
“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…”
Kraus: Asset management is extraordinarily complex because it is behaviorally driven
“Most people looking at asset management think it's simple, but in fact, it's extraordinary complex. And as I like to say to people, if it was so simple, every manager would outperform. And we know that that's not the case. So, it's actually a very complex and …”
Kraus: Merrill Lynch free cash plummeted from $90B to $10B in 2008
“I remember the time we had some ninety-odd billion dollars of free cash. I tell you that because that 90 went to below 10 within a short period of time. Just basically from mark to mark, it's not losses.”
Kraus: Holding 20 to 25 positions captures 95% of diversification benefits
“What you learn about diversification as well is that the benefits of diversification continue. As you add more and more positions, but it's asymptotic. It becomes significantly less valuable once you're beyond 12 or 15. And 20 to 25, you've gotten 95% of the f…”
Kraus: High-yield ETFs hold 100 bonds versus 1,000 in index
“For example, in high yield, the high yield ETF owns a hundred bonds. The actual index owns over a thousand, and so replicating the index is almost impossible.”
Kraus: 85% to 90% of managers rely on identical screening processes
“What I find is 90%, maybe 85% of the managers source things pretty much the same way. They have some kind of a screen process that identifies a large universe and brings it down to a smaller universe, and then they start to actually think about what they want …”