Monday we took a look at performance of the various hedge fund strategies for June and YTD 2009. Below is a chart showing performance going back to 2002 (all the data I could find).
While these returns on an absolute basis are not exceptional, they do dwarf equity returns over that same time frame.
Maybe you do get what you pay for?
Source: Barclay Group
Wednesday, July 8, 2009
Hedge Fund Performance Since '02
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Jake,
ReplyDeleteI'll bet those returns are not dollar average weighted. Said returns are also likely heavily skewed by survivor bias. I won't even mention that many of the so-called "gains" will disappear if and when holders try to cash them in.
For many, after tax returns are the best benchmark. Most hedge funds are notoriously tax inefficient. Just think of all the taxes that Madoff investors paid on their "gains".
It really is ridiculous to look at gains in isolation from non-free market events too. Treasuries have outperformed most hedge funds. And absent heroic intervention by the gov't, said hedge fund returns would have trailed treasuries by much more. In that light, the gov't is responsible for much of the hedge fund "alfa".
they are dollar average weighted (i calculated them myself with monthly returns) and they are definitely after-fee (i actually called barclay hedge to verify).
ReplyDeletethat said, there is definitely some survivorship bias involved (i.e. those that underperform / close stop reporting), but this is mitigated by the fact that we have all the historical data which doesn't leave the index if participants close.
that said, of course the figures will change after-tax, but the figures do show the ability of the broader hedge fund universe to outperform over a very rough period (i personally do not invest in hedge funds -i'm too poor - and i do not work for one, BUT the results are a lot stronger than you are giving them credit for).
BUT the results are a lot stronger than you are giving them credit for).
ReplyDeleteJake,
Yes, the dollar average weighting surprised me. Averages are deceiving. The distribution of gains would be interesting.
That said ,however, I give credit where credit is due - treasuries. Mid and long term treasuries have out performed most hedge funds over your time period. I also maintain that absent the fed's/gov't's heroics, most hedge fund returns would have trailed treasuries by an even greater amount.
Maybe, hedge fund investors are getting what the fed/gov't is paying for. Who knows? Perhaps the big "winners" were made whole by the fed/gov't.
Just thoughts.
Easy to pick the asset class after the fact, but it is true that from January 2002 - June 2009, the Barclays Treasury Index is up 7% / year.
ReplyDeleteHowever, if you want an asset class that has recently been dependent on the Fed's / Gov't's heroics, it is Treasuries. Heck, the fed is actively buying them to keep yields low (and prices high).
However, if you want an asset class that has recently been dependent on the Fed's / Gov't's heroics, it is Treasuries.
ReplyDeleteJake,
Let me start off by saying you run a wonderful blog with great insights. Bloggers such as yourself are a needed antidote to all the MSM financial brainwashing.
But as with hedge funds, I disagree with you on treasuries. Yes, the fed is buying treauries. But the fed's holdings of treasuries are still far lower than at the start of the crisis.
The fed purchases of GSE debt & securities are another matter. So are the myriad of unknown private assets that have been swapped for cash at the fed. The $$$ and guarantees for these private assets far exceed treasury purchases. And beyond the fed, the Treasury is backstopping the GSEs, AIG, C, BAC and many other banks and insurance companies. Even money markets are being backstopped.
Absent fed & treasury heroics, the 10yr yield would be far below 3%, much like it was for years and years in the aftermath of the Great Depression.
In light of the above, I don't see the point in giving credit to any part of wall street, including hedge funds. Less bad doesn't make sense to me. Absolute returns < treasuries? No way does that deserve praise.
Also, I did not invest in treasuries after the fact. I started the move to treasuries in 1997 when the market stopped making sense to me. I was early. The ironic thing is, I was just trying to preserve gains as I was very distrustful of all the new found wealth. Deflation never entered my mind until the housing stupidity. At that point the whole debt as money CONcept really started to worry me. I stopped trusting the money (all the promises to pay).
FWIW, I don't see any green shoots. Wall street shenanigans scare me shootless - I still don't trust the money they've created. I'm still in the treasury bunker. Apparently, it will take more than a 50% off sale to get me out.
Calafia rather than California...
ReplyDeleteMab- and I greatly appreciate the feedback and dialogue. That said, I must correct you on the following:
ReplyDelete"But as with hedge funds, I disagree with you on treasuries. Yes, the fed is buying treauries. But the fed's holdings of treasuries are still far lower than at the start of the crisis."
The Fed has actually added more than $100B in Notes and Bonds (i.e. Treasuries) to their balance sheet while selling a ton of T-Bills. The difference may seem trivial, but in my opinion it does impact the shape of the yield curve.
That said, lets end this argument as it sounds like we are in argreement about the bigger picture. The million dollar question though... you hanging on to those Treasuries or are you looking elsewhere?
The Fed has actually added more than $100B in Notes and Bonds (i.e. Treasuries) to their balance sheet while selling a ton of T-Bills.
ReplyDeleteJake, you are very well informed.
But that doesn't change the fact that total fed treasury holdings have decreased or that the fed is providing trillions in cash and guarantees to support private assets.
The point I am making is that absent the trillions in support of private assets, intermediate and long term treasury prices would be much higher and private asset prices would be much lower. I believe short term treasury yields would likely be zero or negative. Giving credit to wall street or hedge funds without this context seems amiss.
As for my treasuries, I'm holding. When yields got stupid low, I moved more into shorter term bills and TIPS. In hindsight, I should have been greedier (yes, my hindsight is better than my foresight).
The TIPs move was a hedge. I see deflation and/or low inflation ahead. The inflation insurance was on sale and, realistically, we had reached "what's the point" type yields.
Obviously, I don't expect to make money from money here. But that seems appropriate given my deflationary outlook and belief that asset values (stocks, commodities and real estate) are too high.