In finance language, the returns of the market are called beta. Good hedge funds like Citadel or Millennium generate roughly the same amount of returns every year regardless of what the market does in that year. The purpose of a hedge fund is to generate alpha - or consistent returns uncorrelated to the market. The purpose of a hedge fund is not to beat the market. But they also get shit on by media and politicians due to fee structure and pass through income. But HFs serve a purpose for larger investors. I think the original question and article make a great point for 99% of investors. So just like I wouldn’t measure my fixed income manager against the S&P 500, I wouldn’t measure my HF manager by that unless they were long only large cap specific HF. Then decide the type of fund which is covered in other comments. Publicly traded companies just aren’t going to risk this.įor any investment style you have to consider it’s objective first either passive (match the benchmark) or active (outperform benchmark / alpha). It really is rare that a hedge fund would have actual material non-public information. A lot of quant shops will but there is a plethora of hedge fund styles including: long only, long/short, neutral, quant, derivative only etc.Īs much as media wants to play up “insider” trading. Not all hedge funds engage in high frequency trading to start. They don't realise that their, and their parents and grandparents, pensions are quietly benefitting from it too, both the occasional big wins, and the stability against some other investments. Many people with small savings get riled up at these hedge fund type things when some massive gain hits the headlines. When you have a bit more to invest (and that includes your pensions), you will hopefully choose some kind of managed product (because you're not an investment expert, and it's an important part of your financial position) they may well put some of that investment into hedge funds. Generally, they have more scope to benefit from circumstances when they've gone particularly wrong, locally. On a good day, you get a noticeable upside when they spy some kind of investment or investment vehicle that comes out good. When you're talking about putting a much more ridiculous sums of money somewhere safe, you can afford to pay a slice of the salaries of the managers, the researchers, a cut of the losses where their hunches don't pan out. What banks are allowed to do with deposited funds is highly regulated in every country You probably have no cares about international fluctuations, the price of your bread or fuel may go up or down a bit, but you've no 'other side' you could be standing on to come out financially better than staying sat in your (only) home. If you've a small amount of money and want stability, put it in a bank account.
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