Posted on 01/14/2014 4:12:39 PM PST by Red in Blue PA
Hedge fund gains were trumped last year by the equities boom and generated a global average return of only 8 percent, according to a report published on Tuesday.
Alternative investment research provider Eurekahedge found that hedge funds — which use borrowed money to generate returns in both bull and bear markets — that focused on developed markets returned between 8.79 percent and 26.62 percent in 2013, depending on region. In comparison, the benchmark MSCI World Index, which tracks 23 developed countries, gained over 27 percent.
U.S.-focused hedge funds in particular struggled to compete with Wall Street, where the roaring S&P 500 index rallied nearly 30 percent over the year. Meanwhile, North American hedge funds averaged returns of around 10 percent, according to Eurekahedge.
(Excerpt) Read more at cnbc.com ...
At least the hedge fund manager's all got bonuses for their paltry gains.
Excuse my stupid question, but would someone in simple user-friendly terms explain what is a hedge fund?
Hedge Funds and funds which are for the uber-wealthy and usually require a minimum investment of $5 million or so. For this exclusivity, one assumes one will get superior performance. You also pay far more in terms of fees.
What's coming is going to make that look like a Sunday picnic.
In the beginning, a hedge fund was a fund that reduced risk by hedging its positions. For example, they might buy the S&P 500 and also buy bets that the S&P would decline, "puts", in sufficient quantity to remove the risk that the S&P 500 might decline. Then came the 2000 dotcom meltdown. Some hedge funds had bet that the market would decline, but had not hedged their position. Theirs was nothing but an old fashion wager, but it paid off in spades, so no one ever called them on it. They were all brilliant. From then on every respectable pension fund had to allocate part of its funds to a hedge fund or two, so that they could have some "exposure" to earn higher returns, and also to appear brilliant themselves. It became received wisdom that hedge funds were populated by higher levels of human intelligence that would generate extraordinary returns in consideration of exhorbitant, but justified, fees. Chameleon-like, money managers who formerly earned a fraction of 1% per year, now morphed into hedge-fund managers and earned 2% per annum, plus 30% of capital gains and managed to make that 30% a capital gain for themselves as well. These money managers became rich on the 2% alone, for doing nothing but talk a good story. Capital inflows to hedge funds were bouyed by Fed Chairman Alan Greenspan's low short-term rates. Funds borrowed short at low rates were invested long and imprudent based on pro-formas. Maturities weren't matched, but who cares. Rules are for peasants. They mischievously dubbed this the 'carry trade'. Then came 2008 and pension funds began taking a dim view on all of this. They arranged proposal calls and made "hedge funds" bid for their business. 2% & 30% became 1% and 10%, or thereabouts. The exceptions were funds run by truly brilliant people like Dan Loeb, and Democratic Party affiliated funds that had an inside track on doings in D.C. They charged 3% and 30%.
In short, hedge funds don't hedge anything. They are just smarter than you.
An options purchase helps protect your capital if a stock goes the opposite way that you intend (thus the term "hedging" your bets).
I don't think we're going to get a crash. Actually, the market rallies usually when Obama gets slammed. If you look at a chart, many of the gains took place over the last 3 months when Ocare was under fire.
A kid’d with my boss once...I asked him what do you call a rogue trader? He said “what?” in his Brit accent. I said in my jrz accent, Managing Director.
The rest of the fellas chuckled, while we had chat about my career in his office.
The rest of the fellas chuckled, while we had chat about my career in his office.
"... there were winners making unauthorized trades, too. The difference: they were winners."
"... why is trading beyond internal limits allowed? Because of the winners."
" It was pretty clear what The Market didn’t like. It didn’t like being closely watched. It didn’t like rules that governed its behavior."
"Ultimately, the difference between trading floor rogues and royalty is how their bets pay off, not whether they take extreme risks."
I am a fan of rogue traders, guyfromjrz. There need to be rules so that someone can break them. Otherwise, the world will stop turning. $10 billion lost to rogue trades in a decade, but countless tens of billions won by trading royalty, most of whose trades were technically unauthorized. We never hear about them, only the losers.
"Kerviel claims he exceeded his credit limits regularly and that when he made money for the bank in 2007, he received a $416,000 bonus for $60 million in profits for SocGen."
A bonus of under 0.7% doesn't align interests. What did they expect?
All this rogue trader talk is just to elicit sympathy as the bank makes billions hand over fist.
You didn't say if your boss liked the joke.
He was not amused of the conjecture since he is the head of the derivatives /exotics trading desk. I am the senior credit risk manager. I reached the designation of CFA, got a MBA from NYU Stern SOB. I agree with your views. Have good one.
You were being a good risk manager.
Cheers.
I think that Kervil guy knew the back end of source system of risk/trading and that is why he was able to breach the credit and risk tenors, IIROC. PFE was not part of the fundamentals, for him. But I do have to believe some manager was more than happy to embrace the p&l.
I nailed a guy minipulating a yield curve on on equity book. I think a good risk guy is guy who knows how to rig the p&l. I do. But, a place with good RM’s can make those things never happen.
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