The 4 Charts Your Friendly Equity Hedge Fund Manager Does Not Want You To See

Tyler Durden's picture

A funny thing happens when there is only one driver of economic market growth, any chance of intelligent fact-based, logic-induced, fundamental-biased investing becomes reduced to the rubble of momentum-chasing leveraged beta. No matter how much your 2-and-20 taking manager explains his 'process', the charts below show that the thundering herd of 'dumb' money that used to be so useful in identifying the extremes of market hubris and dysphoria appear to have overwhelmed the world of 'smart' money. Hedge funds have never been more net long US equities; hedge fund returns have never been more correlated to the market; hedge funds have never produced so little alpha; and hedge funds are as leveraged to this beta as they were at the top in 2007. This will not end well...


The alpha-generation has left the building...



as hedgies are increasingly mimicking their low-cost low-tracking-error ETF nemeses...


Which has meant that hedge funds have never been more net long US equities...


and in order to justify their fees, they have had to lever - and have never been more leveraged...

Gross exposure rose by 12% to $1280bn notional in 1Q13. Percentage-wise, gross exposure increased to about 160%. When including ETF positions the gross exposure increases to 180%.

In Q1 2013, hedge funds reduced cash holdings to the 2Q07 trough of 4.3%, while raising net exposure to the 2Q07 peak of 59% in 1Q13. Meanwhile, dollar notional net exposure rose by 11% to $463bn notional in 1Q13 – setting a new record. The bullish positioning indicates that risk appetite is back to the peak set in 2007.

At of the end of 1Q13, hedge funds owned 5.0% of the Russell 3000 float shares, second only to the 2Q08 peak of 5.1%.


Charts: BofAML and Morgan Stanley

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fonzannoon's picture

If hedge funds have never been this net long equities and so correlated to the market then why are they getting their ass kicked so bad by the S&P?

malikai's picture

I blame public schools.

knukles's picture

See this is the whole fucking problem with reality.
They figure I'm the one not supposed to see these charts but I'm not the fucking hedge fund manager who does see the charts and who still fucks it up, royally, so they figure if they lie to me it'll all be OK when I have absolutely nothing to do with it anyway!

It's like a blood lust enema.....  Madness!

The Master's picture

I guess it depends on what equities they were long....AAPL must have hurt like a b*tch!

EclecticParrot's picture

Just like with the AAPL alpha isolation trade (long AAPL/short S&P) that ended badly after it became a crowded trade that needed unwinding, when the first guy sneaks toward the exit (after taking, of course, the last shrimp puff), the others will follow like lemmings, sparing not even a single first-born, the Pied Piper cranking out Mozart's Flute Concerto as the water's ripples grow ever wider . . .

babylon15's picture

Too much money, too few opportunities.

Rainman's picture

Chairsatan built that ... momo and pomo.

Cacete de Ouro's picture

It pretty much comes down to swagger in the HF marketing world. Firstly, the team, what did you do before:

well, we worked at first tier (often 2nd tier) firms on the desk....o ye, that guy was awesome; next, we raised a little bit of money from X (who happened to be my ex boss); thirdly, we learned our english from San Fernando porn flicks so we have ridiculous american porn accents even though we are from spain and belgium; 4thly, we did MBAs in Yale or London or Stanford and we learned to be confident, even though we are very not confident, lastly, we wear expensive suits and go fancy restaurants, even though hedge fund management should be about researching investments and working in the best interests of clients.

Clients, Fuck that shit, 2 and 20 at least...hey, you wanna party man (belgian style)?

johnnyblade's picture

active shooter on base .  Texas.   ft. sam houston

venturen's picture

Just house money....the taaxpayer will take the losses as always!

TheEdelman's picture

Guess Dr. Burry was right about suggesting hedge funds may begin to go the way fo the dodo.  

Burry 2/2

TheEdelman's picture

Anyone notice this week that "Scion Captial" is now "Scion Asset Management"?  Looks like Dr. Burry is a money manager now...  good for him... hedgies are so 2000's. redirect to

NeedleDickTheBugFucker's picture

Hedge funds stopped being hedge funds a long time ago.  They have kept the moniker simply to preserve the 2 & 20 fee structure.

TheEdelman's picture

2&20 is what will kill them off.  No one (big institutions) will pay 2&20 for investing in a bunch of treasury-like crap, etfs and index funds... that their grandmothers could do for them.  

long-shorty's picture

big institutions would pay 3&30 if the fellow pulling the trigger believed it would somehow mitigate his own career risk.

disabledvet's picture

by definition the Hedge Fund community is "overweighted." in other words "they're looking for outsized gains in downsized market." sorry but if you're disappointed in your fee structure too bad. "you can reach for return and lose just easily" as well. never has the importance of diversification seem more apparent that now. i understand "why aren't all those pensions being annihilated???!!!!" from all those Wall Street psuedo science masters of inverse collection. obviously "the get lot's of airtime as well." but the problem here is one of...obviously..."slowness." the turtle recovery simply doesn't allow for Maseratti like returns. "you're gonna need the juice" and that juice is oil and natural gas "as a trading strategy." that's ten million down to start...just to BE IN that game. "and no, it's not a bettor's game"...though there sure is a lot of game theory involved interestingly enough. interesting information "exhcanges" do have the appearance of being very much the same as oil and natural gas. i'm unclear how they would/do in fact/ work...although just as obviously media stocks have surged "and you do have zero hedge" (which is more of an aggregator than an exchange.) but "we have Government problems" with this business model as well...let alone with the reliability/stability of the media business model itself. Perhaps if we started with healthcare first?

The Swedish Chef's picture

This time it´s different. We have QE. Stop worrying. 


Long, period. Short French gov´t bonds. 

Downtoolong's picture

So long Tepper, Fink, et al, and thanks for all the silver.