Strong words for the hedge fund industry– coming from one of the best in the business, Dan Loeb from Third Point Capital.
“There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies,” the New York-based firm said in a quarterly letter posted on its website.
Third Point, which was founded in 1995 and lost 2.3 percent in the first three months of this year, described the industry’s performance as one of the most “catastrophic periods” that it could remember since the firm was started. It said the “increasing complexity” in markets over the past few months is here to stay.
Most investors were “caught offsides at some or multiple points” since August, Third Point said, when China’s surprise currency devaluation roiled global markets. The firm said market participants were hurt by bets against the yuan in February and investments in Facebook Inc., Amazon.com Inc., Valeant Pharmaceuticals International Inc. and Pfizer Inc.
“Further exacerbating the carnage was a huge asset rotation into market neutral strategies in late the fourth quarter,” Third Point said. “Unfortunately, many managers lost sight of the fact that low net does not mean low risk and so, when positioning reversed, market neutral became a hedge fund killing field.”
Here’s a free piece of advice for Dan and his buddies struggling to make ends meet in the stock picking business: get on over to Twitter. I’ve found everyone there to be quite the fashionable expert on the economy and for the management of money. They’re always right. To prove their success, I’ve seen many pictures of exotic vacation spots, as well as new cars and fast women.
Dan, if you want new cars, fast women and a chance to parlay in exotic places around the world with stacks of cash on your desk, do yourself a favor and visit Twitter and behold the expert opinions of so many astute and well qualified investors.
I’ve done my good deed for a lifetime. I can die now, knowing that I’ve made a difference.
If you enjoy the content at iBankCoin, please follow us on Twitter
What exactly is the hedge fund’s question (honest question from an outside). Is it that they have no more talent than the typical mutaul fund manager? Is it that hedge funds no longer hedge?
Hedgefunds are alpha seekers. Gamblers that are greedy. So when market runs they hit it big, then they blow up cus they spent their wad.
Yes. I agree with roundwego. A hedge fund is an Orwellian name for a fund that always seeks alpha and never hedges.
Unpredictable times like these demonstrate what most insiders already know for fact: Most hedgies cannot generate Alpha. Leveraged beta returns during raging bull markets =/= alpha, despite the claims of Industry Charlatans.
The good news, of course, is a washout will reduce the industry to actual performers, plus a few lucky frauds. Most of the frauds will be relegated back to the Hamptons, where they will seek new ways to reinvent themselves.
Get on over to twitter? Seriously? That’s really funny Dr. Fly.