Friday, September 5, 2008

Hedge Funds Returns

Hedge funds supposed to deliver in bad times and good times by their ability to go long or short. In reality, not many winners. I spent some time look at the winners background to understand why they win.

1. Paulson & Co - they detected sub-prime was going to blow up in early 2007 and taken massive short positions. Now bet on corporate debt to blow up.

2. Breven Howard - specializing in global macro investing by betting on interest rates and currencies.

3. D.E Shaw - Quantitative investing with emphasis on statistical arbitrage.

4. Bridgewater Associates - Diversified Alpha. Diversified implies almost into everything from bonds, inflation-linked bonds, equities, commodities.

5. Winton Capital - Emphasize on trend following

6. Caxton - Global macro strategy

7. Tudor Investment - Emphasize on trend following

8. SAC Capital - A trend follower.

Why they win ? They got the big picture right - sub-prime, inflation and commodities - and have taken courages moves. Only a very brave one can be a short-seller because you are really going against the whole world, especially during red hot 2006 and 1H2007. Not many Quant makes it. Three trend followers make it are impressive. Macro guys riding on trend is similar to trend following except there could be some slight variations in their executions.

Hedge-fund managers with true ability to go long/short on the right big picture are a very rare breed.

No comments: