Don't Show This Chart To Your Hedge Fund Manager

Tyler Durden's picture

Make no mistake, the 2 and 20 crowd are having a rough go of it lately. 

As we reminded readers in the wake of Nassim Taleb’s massive $1.1 billion payday on August 24, hedge funds are supposed to “hedge” - i.e. guard against all manner of black swans, tail risks, six sigma events, and other things that statistically speaking aren’t supposed to happen but in today’s broken markets occur with alarming frequency - but instead they merely “ride the beta train with the most leverage possible, hoping that the Fed will prevent any events that actually need hedging, and blow up in a fiery crash any time the market tumbles.” 

For those who need a refresher, here’s how some of the more prominent funds had performed through August 21:


Indeed, even the zen master himself, Ray Dalio, isn't immune as the $80 billion "All Weather" fund recently found itself caught in the rain with no umbrella after an utter breakdown in the historical relationships between asset classes (volatilities and correlations) that are used to construct optimal "risk-parity" led to what Dalio called a "lousy" August that saw the fund down more than 4%. 

The bottom line, as Goldman succinctly put it last month, is that "hedge funds are on pace to lag the market index for the seventh straight year in 2015," suggesting that you'd be far better off paying 0 and 0 for SPY and calling it a day than you would paying 2 and 20 especially considering you're relying on the Fed put either way.

For anyone still not convinced, we present the following chart from Citi's Matt King which sums up all of the above in just about the most straightforward, idiot proof manner imaginable by simply comparing hedge fund returns to a 50/50 mix of stocks and HY credit. Put simply, if you had bought SPY and JNK four years ago for a gross expense ratio of just 0.10% and 0.40%, respectively, not only would you would have saved yourself quite a bit of money, you'd have better performance as well.

Summing up...

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joego1's picture

They got the big green dick arighty.

Truther's picture

Again, it's their perception of a dick. LOL

Squid-puppets a-go-go's picture

forget  20 and 2

show your hedge fund manager 46 and 2


SuperRay's picture

That big green dick is right up the ass of non-financial america...

gizmotron's picture

More important is the limp red noodle all over the floor.

coinhead's picture
coinhead (not verified) Sep 19, 2015 5:40 PM

Watching the market break the last week of August, like watching Lisa Simpson breaking Ralph's heart in slo mo...

buzzsaw99's picture

they still get the 2 even in bad years and never give back the 20 even if they lose 100% of aum the very next year. great deal, for them.

knukles's picture

Way back in the 70's when nobody'd even heard of hedge funds (Oh they were out there, few and far between, but basically unknown) I knew something was amiss when several bond salesmen whom I knew started up "hedge funds".  These guy's entire professional competence was peddling bonds.  No asset management or economic, finance, etc., backgrounds.   Another one bought an S&L and kinda whatever'd with it, like buying shaving cream companies, etc.  He made a fortune, was one smart dude.  The rest, just leaches upon society, picking up the crumbs of life.
They didn'y give a rat's about the client money.  All they wanted was the 2&20.  And if it cratered, so what.  Can always gert another job peddling bonds to Muppets.

nmewn's picture

Everything's in run-off, fiat money, governments, corporations, jobs, liberties.


Yen Cross's picture

 Bloomturd must have stumbled over the "reality rock" & tumbled into ZIRP ditch?

   BTW, Is Michael Bloomburg, housing John Corzine in Middle "zion' Earth?

  Gotta love false breakouts?  :-D

Legal_US_Immigrant_Citizen's picture

You take Hedge Funds and give them Kidney Stones, you get blood on the streets :-)

Atomizer's picture

Hedge fudgepacking managers are wetting their index finger to check which way the wind is blowing. 

stormsailor's picture

pics look like a reverse viagra commercial

Yen Cross's picture

  Moar useless eaters are going to get removed from the "gene pool' on Sunday.

Ban KKiller's picture

"I won't be around when this shit blows up". Every fund manager in 1998. 

401K of Dooom's picture

"Tulip Trend Fund"?  Okay I now know it is time to get out of Dodge and run to the Black Hills!

Ness.'s picture

Had they known that TARP was only the first round of a 15 round fight, they would have made different moves.  Now we're talking neg rates and a possible QE4.  Nobody can hedge without knowing the terms.  I hate these fuckers too but you can't really blame them for poor performance.  No sympathy.  I said I hate these fuckers, right?

yogibear's picture

But the Federal Reserve enabled the speculation and the bubble.

Just like Greenspan and Bernanke (Federal Reserve member) created the  housing bubble. 

All bubbles eventually burst.

SharkBit's picture

It's all trailing zeros.  1% Performance over any hurdle on a 10b fund is like 20m. 2% = 40m etc.  For what?  Fuck all.  The entire Hedge Fund industry is a total sham.  Constructed by the elites for the elites.  Chasing alpha my ass.  The ability to set up these vehicles should be ripped up and buried.  The hedge fund industry is border line criminal.  Donations + Lobbyists = my politicians = my laws = money for me and not for you.

How can anyone be worth 4 billion per year.  Sorry but just criminal.

Also read: The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True

By the way, all upside, with no downside.  I party on using your capital with the rigged algo HFTs with 0% cost and lever up to the max.  When the whole thing blows, and it will, you loose, I have made my millions and retire.  Pretty fucked up world.

redd_green's picture

Re "The hedge fund industry is border line criminal."