The Difference Between 2 And 20 (Inches) - Shrinking The Hedge Fund Myth

Tyler Durden's picture

Hedge funds are built on the idea that a smarter guy (and they are almost all guys; only 16.8% of managers are women) with a better computer can make miracles possible by uncovering inefficiencies in the market or predicting the future.

However, as Bloomberg Businessweek exposes the fact that in a market increasingly dominated by ultra-high-speed headline-reactions, centrally-planned divergences from fundamental realities, and clamp-downs on insider-trading, the 'edge' and scale of the BSDs has diminished - despite their ongoing belief in their own omnipotence.

Behold what happens when Hedge Fund viagra "expert networks" and "information arbitrage" is taken away, and everyone trades on the same information.


As one analyst noted, "any idiot can make a big return by taking a big risk," but the performance anxiety coupled with the lack of ability to get it (returns) up leaves hedge funds limp in the face of an inexorable rise in equity indices (long-only is the new long-short it would seem).


As Bloomberg concludes:

Let the industry’s recent underperformance serve as a reality check: No matter how many $100 million Picasso paintings they purchase, hedge fund moguls are not magicians. The sooner investors realize that, the better off they will be.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
GetZeeGold's picture



There was once a hedge fund manager from Nantucket...

moonstears's picture

Who kept his stock tips in a bucket...

francis_sawyer's picture

Hickory Dickory Dock... Bernanke was...

Jumbotron's picture

Hickory Dickory Dock... Bernanke was...


Hickory Dickory Dock,

Bernanke was sucking my cock,

The clock struck two,

I shot my goo,

I kicked that bitch's ass down the block.


Nod to Andrew "Dice" Clay.


Harlequin001's picture

That's what happens when you just print money.

How can you make money from shorting something that doesn't go down? Any hedge fund making money today has to be trading on inside information, has to be, or it would be losing money. They are taking a terrible risk with clients' money because the markets are not going where they should be.

aint no fortunate son's picture

that giant sucking sound you hear is capital being withdrawn from one of the last vestiges of the ponzi scam... or is it just Maria B?

noless's picture

He tried day to day, but in his dismay..

NoControl's picture

There was once a hedge fund manager from Nantucket...
Who kept his stock tips in a bucket...
then the DOJ...
took it away...
So it's back to the dart-board then, fuck it...

moonstears's picture

Through complex algorithms...

He'd cause clients to jism...

And the rest of the market to "suck it".

BigInJapan's picture

He spoke like Kyle Bass...

Sofa King's picture

More like, "As I sit here broken hearted..."

Whatta's picture stock picks are shit, and Muppets get farted

XRAYD's picture

Wow, the artist for the cover deserves kudos! No need for Viagra, but needs Flomax!


The picture speaks a 1000 words.

Shizzmoney's picture

LimpDick Capital

Mercury's picture

Clamp-downs on insider trading?


So, people really pay Ted Kennedy Jr. big bucks for his keen insights into medical technology?

greatbeard's picture

>> Clampdowns on insider trading?

Somewhat, with small fry hedge funds.  Giving Fed minutes to the big banks isn't considered insider trading.

As a bone to the hedge fund dolts, they were given the tip off of the ucomming smackdown on the metals. 

Cognitive Dissonance's picture

It seems even the hedge funds can't compete with the HFT/TBTF/central bank manipulation.

<As an individual investor I don't feel quite as bad as if I were the only one getting the stiff shaft. After all misery does love company.> 

disabledvet's picture

still a theory but the evidence is compelling (whatever emotional bias's one wishes to attach to it of course.) in other words "QE" has leveled (both figuratively and literally) the informational battlespace. if all I need to know what the economy is doing and what the interest rate outlook is (QEternity) then I really don't need to know much more. this is especially true if i'm running a business or extending credit to one. if all I have to worry about is the economy then I don't need to be paying Wall Street a dime. since that is a massive expense (the largest on the planet I would argue...why would they want an economy that works? and the answer of course is that they want the opposite) not having to worry about it is an immense and immeasurable cost savings.

The Axe's picture

Thats the funniest thing I have ever heard "clamp down on insider trading""'    stop it Tyler....With that kind of humor you could have saved the Kudlow Show....funny

I am a Man I am Forty's picture

These hedge funds exist because they have corrupt buddies that work for pension funds and other places where they collect money from the masses to redistribute to their friends on wall street. Quite the gig if you can get it.

People still vote for politicians so there will be plenty of suckers out there that will be willing to give their money to hedge funds that will suck them dry.

buzzsaw99's picture

2 and 20 is sweet if you can get it. Paying 2 and 20, not so much. Where are the customer's yachts?

SheepDog-One's picture

WTF all the hedge funds need to do is BTFD! If there ever is one again.

fijisailor's picture

Yea the lights went out


Catch-22's picture

“Everyone missing in the fiery crash of a runaway oil train in Quebec is presumed dead, police told grieving families, bringing the death toll to 50 in Canada's worst railway catastrophe in almost 150 years.”


Tyler is MIA on this… not one word!  (Or did I miss something?)


… and before you junk me, ask yourself what ZH will become if its community turns into sheeple and won’t hold his feet to the fire (pun intended!).


fijisailor's picture

Plenty of MSM availble for death and destruction for the sheeple.  ZH is above that.

Jumbotron's picture

He reported the death by throat cancer of the head of the Fukishima plant.  That was energy related as well.

So...he's not THAT above it, it seems.

Zer0head's picture

and we got the floorplans of Cohen's New York penthouse


Please tell me that ABC media is not part of Henry's Blodget's stable or some other prostitution ring, though with the relatively new (and welcome) descrimination terms perhaps something is changing(ed)

autofixer's picture

But not enough MSM pointing out that the Keystone Pipeline may not be as dangerous as the evironmentalists said.  Oh, I forgot, the crony capitalist and President supporter Buffet owns a railroad.  

Catch-22's picture

Good point...

The "NO MORE KILLER TRAINS" campaign has already started… next stop “OIL OFF THE RAILS !!!”.

BigInJapan's picture

He didn't touch Kermit Gosnell, either...


But that dumb Korean slamming the 777 into the runway with a death toll of 2... oh Tylers got all over that shit.


That Canadian train is a wierd one. How did the trains come uncoupled? How come the brake engines on the taker cars were off if the train was parked on a hill, and finally, how the fuck can you have detonation of bunker C crude oil, which I am led to believe was the entire shipment? Was there any gasoline in the tanks?

Judge Crater's picture

In most cases, hedge funds operate like Mafia bust out operations: take over a company, load it full of debt and then take off with the cash.  The economic wreckage you leave behind is someon else's problem.  For that matter, if you consider picking winning stocks as akin to picking the horse that wins at the racetrack, the comparison is even more germane.  Years back, when many gamblers actually went to racetracks to bet on horses, there were always reports about fixed races and jockeys beaten up for winning the wrong race.  Fixed races with insider information to the crime family on which horse would win.  You know, if you think of a big hedge fund as akin to a mob crime familyion the 1950s, there is not much difference between them.  Even to the fact that the mob crime families pretty much didn't pay any taxes.  And the fact that the crime families paid off the police and the prosecutors, "protection money."  

ziggy59's picture

Long, Shrinkage!

An oxymoron, true...

NoDebt's picture

They say all Alpha eventually just becomes Beta.  Most "garage band" hedge funds are well past this point.

brusty4's picture

And that picture is the cover of their magazine.  Stay classy, Bloomberg...

nantucket's picture

there are many alpha pretenders that point to ex-post alpha as proof they are differentiated, but in reality the alpha is small, inconsistent, and derived from randomness in returns.  they are alpha pretenders.  they are about 97-98% of portfolio managers.  they are exposed as pretenders when they can't clearly communicate an alpha thesis that explains their thoey of the market pricing mechanism, why an inneficiency exists, how it can be exploited, why their skill is unique and permits them to exploit it, and show that the alpha actually comes from the inefficiency.

there are also truly differentiated managers that produce alpha at a meaningful level on a consistent basis through skill rather than luck.  they are alpha producers.  they are maybe 2-3% of portfolio managers.  they have a clearly defined alpha thesis, they have thought about the market pricing emchanism, why it has inneficiencies, how it can be exploited, etc.


mattgallis's picture

Arrows out of your crotch?  Where do I sign up!?

Diogenes's picture

"With a billion dollars and enough inside information, you can go broke in a year"

(Used to be "with a million", upgraded by LTCM in 1998)

MeelionDollerBogus's picture

What? You mean expert networks were actually insider trading the entire time?

I'm shocked. My world is collapsing. I know nothing.

( :D )

southerncomfort's picture

seems like Bernanke is getting back at those dudes who made fortunes betting against subprime regardless of impact on global econimies.  hahaha - love the graphic on this!