> Or consider the fact that over 91% of hedge fund managers can’t beat the market, despite the fact that the entire purpose of hedge funds is to explicitly create better returns than the market.
This isn't strictly speaking true. While some hedge funds have the goal of beating the market, most of them have different investment philosophy. Not that long ago most of them were meant for what the name implies - hedging. The idea being that hedge funds optimized for consistency, not higher returns. Market up 20%? Your hedge fund might yield something like a 10% return. Market down 20%? Your hedge fund might be down only like 5%.
The goal of a hedge fund is definitionally to hedge some risk. If you work in say AI then they should invest very little of your funds into AI (to hedge against a blow-up in AI eliminating your income and if you invested in ai also your savings). In the current environment they’d almost certainly have below market returns. It doesn’t make the hedge fund bad; the hedge is meant to counteract losses not double down on gains.
Thats said, a lot of hedge funds now operate as pod shops and that goal is to beat the market.
The hedging in hedge funds comes not because they are intended to hedge risks you have from elsewhere, it is because they (traditionally) hedge against market risk, to seek absolute returns rather than measuring against the market.
sgjohnson · · focus · HN ↗
This isn't strictly speaking true. While some hedge funds have the goal of beating the market, most of them have different investment philosophy. Not that long ago most of them were meant for what the name implies - hedging. The idea being that hedge funds optimized for consistency, not higher returns. Market up 20%? Your hedge fund might yield something like a 10% return. Market down 20%? Your hedge fund might be down only like 5%.
graemep · · focus · HN ↗
lesuorac · · focus · HN ↗
The goal of a hedge fund is definitionally to hedge some risk. If you work in say AI then they should invest very little of your funds into AI (to hedge against a blow-up in AI eliminating your income and if you invested in ai also your savings). In the current environment they’d almost certainly have below market returns. It doesn’t make the hedge fund bad; the hedge is meant to counteract losses not double down on gains.
Thats said, a lot of hedge funds now operate as pod shops and that goal is to beat the market.
graemep · · focus · HN ↗