Thursday, February 2, 2017

"The top 20 hedge funds made their investors $16.1 billion last year"

From Yahoo Finance:
London-based fund-of-funds LCH Investments published its annual list of the top 20 “great money managers” for 2016.

The list, produced using the fund of funds’ estimates and data from eVestment, measures net gains, after fees, of hedge fund managers over the course of their careers. It also includes the net gains for 2016.

Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund, held the No. 1 spot after his hedge fund made investors $4.9 billion last year.

George Soros’ family-office hedge fund maintained its No. 2 post even after the fund lost an estimated $1 billion last year. Soros has produced net gains of $41.8 billion since 1973.

John Paulson’s Paulson & Co. fell from the No. 7 spot to No. 13. Paulson & Co. lost an estimated $3 billion in 2016, according to the report.

“Tiger Cubs” Steve Mandel of Lone Pine and Andreas Halvorsen of Viking Capital also fell in the rankings after both funds had losing years....MORE
Keep in mind the total alpha available to all participants is surprisingly small.

The following is from a response to some doofus who commented at Marginal Revolution that Izabella Kaminska didn't understand arbitrage...sorry, I just started laughting, truth, even all these years later.

So, with limited alpha and a great-but-churning asset base the whole industry turned to leveraged beta and prayed no one would notice, at least until the checks cleared.

...One real problem is something I mentioned in a rant on arbitrage a few years ago:

...People, people, people arbitrage opportunities have been disappearing for the past 150 years!

I guessing the two commenters didn't have the definition: "The simultaneous purchase and sale of the same instrument in different markets at different prices" pounded into their head so often their ears bled.
I did.
How many arbitrages do they think present themselves each year?

Spotting and acting on an arb is pure alpha and here is a dirty little secret:

The entire amount of alpha available to the entire hedge fund industry is only $30 billion per year.
As reported by a hedge fund maven via Investment News back in 2006:
...PHILADELPHIA - Everyone in the crowd assembled for the CFA Institute's hedge fund conference took notice when David S. Hsieh said that the amount of alpha available in the hedge fund industry each year is $30 billion.

Mr. Hsieh, a professor of finance at the Fuqua School of Business at Duke University in Durham, N.C., presented a synopsis of his ongoing research, which focuses on the style, risk and performance evaluation of hedge funds, at the Feb. 16 conference here. As part of his work, Mr. Hsieh questioned whether flows into hedge funds are causing a decline in hedge fund returns and what might happen if the high rate of inflow continues.

Because of difficulties in obtaining reliable hedge fund data, Mr. Hsieh used fund-of-hedge-funds data and broke down returns into alpha and beta sources. He said the research led him to "feel comfortable" determining that there is a finite amount of alpha - conservatively, $30 billion - managed by the approximately $1 trillion hedge fund industry. And even if capital invested in hedge funds were to rise, the amount of alpha would remain the same.... 
Got that? All alpha not just arbitrage but all alpha was just $30 bil. in '06....MORE, including links.

 -from our May 2013 post, "My Second-to-Last Comment on Izabella Kaminska at Tyler Cowen's Marginal Revolution".