Hedge Funds Want to Stay Popular - Bloomberg

I often say that the key skill of a hedge fund manager is not picking stocks that go up, but rather continuing to manage a hedge fund. If you pick stocks that go up, and a lot of people invest in your fund, and then you pick stocks that go down, and then everyone takes their money out, you have done a bad job. If you pick stocks that go up, and a lot of people want to invest in your fund, and you say “well fine you can invest but you need to sign a multi-year lockup with a very favorable fee structure for me” and go raise a permanent-capital vehicle on the basis of your celebrity, and then you pick stocks that go down, and then everyone grumbles about how they’d like to take their money out but can’t, you have done a good job. Obviously if you just pick stocks that go up forever then you have done the best job — you are Renaissance Technologies? — but that is hard. Not that it’s easy, exactly, to keep your investors’ money even after picking stocks that go down. But it is a solvable problem, there are techniques for it, it is more common than picking stocks that go up forever.

Anyway here’s a story about how “Hedge Funds Are Hot Again.” For instance, “famed investment firm Brevan Howard, which as recently as mid-2019 was struggling to stem an unprecedented client exodus, shut its flagship fund to investors earlier this year” because investors were clamoring to give it more money than it could handle. “Hmm,” you might think. If Brevan Howard (1) has more investor demand than it knows what to do with, and (2) just two years ago “was struggling to stem an unprecedented client exodus,” then … perhaps it should reflect on the recent bad times, and use the current good times to stem the client exodus in advance? Like, when the investors who took their money out two years ago are begging to put more money in now, conceptually, what you want to do is say “sure I’ll take your money now but in exchange you have to promise not to take it out in two years when I start losing all your money again.” And, again, there really are techniques for that.

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"popular" - Google News
August 24, 2021 at 11:30PM
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Hedge Funds Want to Stay Popular - Bloomberg
"popular" - Google News
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