April 9, 2025 • 16 mins
Hedge funds have never been more (or less hedged). The alternative asset class has become a huge destination for institutional and family office capital. But are the high costs and performance risks appropriate for you? Ted Seides is founder and CIO of Capital Allocators, and learned about alts working under the legendary David Swensen at the Yale University Investments Office. He wrote the book, “Private Equity Deals: Lessons in investing, deal-making and operations."
Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news, Gone.
Speaker 2 (00:14):
Gone Thinking about putting some money into hedge funds? You know,
all the rockstar names who produce eye popping returns. Chasing
that performance has led the hedge fund space to swell
to over five trillion dollars in assets, with forecasts topping
(00:37):
thirteen trillion globally by twenty thirty two. But not all
hedge funds are created equally. Investors should ask themselves is
this the right investment vehicle for me? I'm Barry Retolts,
and on today's edition of At the Money, we're gonna
discuss how you should think about investing your money in
hedge funds. To help us unpack all of this and
(00:57):
what it means for your portfolio, let's bring a Ted Side's.
Ted began his career under the legendary David Swinson at
the Yale University Investments Office. Today he's founder and CIO
of Capital Allocators and hosts a podcast by the same name.
His book, So You Want to Start a Hedge Fund?
Lessons for Managers and Allocators is the seminal work in
(01:19):
the space. So Ted, let's start out with the basics
why hedge funds what's the appeal.
Speaker 3 (01:25):
The original premise of hedge funds was to deliver an
equity like return in marketable securities with less risk than
the equity markets.
Speaker 2 (01:35):
So literally, hedged funds.
Speaker 3 (01:37):
A fund that had some hedging component that would reduce risk.
Speaker 2 (01:42):
And today I think a lot of so called hedge
funds are not exactly edged. They seem to be falling
into all sorts of different silos.
Speaker 3 (01:50):
Yeah, so hedge fund as a term became this very
ubiquitous label, And if you look at how the industries
evolve today, you have funds that fall under hedge funds
that look like that original premise of equity like returns,
and then you have a whole other set that look
more like bond like returns. And different strategies can fit
into those two different groupings.
Speaker 2 (02:12):
So I mentioned in the introduction, we always seem to
hear about the top two percent of fund managers who
are the rock stars. Anyone who puts up like really
big numbers, wildly up erform in the market sort of
gets fetted by the media and then they sort of
fade back into what they were doing. It seems to
(02:32):
create unrealistic expectations among a lot of investors. What sort
of investment return expectations should people investing in hedge funds have.
Speaker 3 (02:42):
Yeah, those expectations should be more modest than what you
might read in the press, Barry. What you just described
describes markets. People do well, they revert to the mean.
It happens in every strategy, and certainly the news sensationalizes
great perform wormants and lousy performance. So what you might
(03:02):
read in the press is these incredible renaissancement dallion fifty
percent a year with these high fees.
Speaker 2 (03:09):
Sixty eight percent. If I recall Zuckerman's book, Greg Zuckerman's
book on Jim Simon.
Speaker 3 (03:15):
Now, if you looked at hedge funds as a whole
and try to get at let's say that equity like
expected return you're talking about, like a high single digits number,
has nothing to do with sixty eight percent. Most of
the action isn't on either tail. Most of the actions
right in the middle.
Speaker 2 (03:32):
That seems to be very contrary to how we read
and hear about hedge funds in the media. Is it
that whoever's hot at the moment captures, you know, the
public's fancy and then on to the next That's not
how the professionals really think about the space, is it.
Speaker 3 (03:51):
No, that's right. I think that's generally how the media
works it investing. The news stories are the things that
are on the tail. But it's not how hedge funds
are invested in by those who have their money at risk.
They're really looking at it as risk mitigating strategies relative
(04:12):
to your say, traditional stock and bond alternatives.
Speaker 2 (04:17):
So we talk about alpha, which is outperformance over what
the market gives you, which is beta. Lately, it seems
that alpha comes from two places, emerging managers, new fund
managers who kind of identify market inefficiency, and the quants
who have seemed to be doing really well as of late.
(04:38):
What do you think about these two sub sectors within
the hedge fund space.
Speaker 3 (04:43):
Well, all of the asset management, there's this aphorism sizes
the enemy of performance, and it's certainly been true in
hedge funds that generally speaking, for a long time, smaller
funds have done better than larger funds. Not so sure
that's the case of emerging funds, which means new but
on size you get that. Now, what's an interesting dynamic
(05:04):
and it gets into the quant is more and more
money has been sucked in by these so called platform
hedge funds. So Citadel Millennium point seventy two, places like that,
where have they have multiple portfolio managers and do a
phenomenal job at risk control, and they've seemingly in good
markets and bad generated that nice equity like expective return
(05:29):
and there has to be alpha in that because there's
not a lot of beta.
Speaker 2 (05:35):
That's that's really kind of interesting. You said something in
your book that resonated with me. The best allocators establish
clear processes for evaluating opportunities and setting priorities. Explain what
you mean by that.
Speaker 3 (05:51):
Well, before you just decide I want to invest in
a hedge fund, it's really important to understand how are
you thinking about your portfolio and how do hedge funds
fit in. Now, keep in mind hedge funds can mean
lots of different things, and that the strategies pursued by
one hedge funds is going to look totally different from
another one. So you need to understand what is it
(06:12):
you're trying to accomplish. Are you trying to beat the
markets with your hedge fund allocation? Okay, you better go
to one that takes a lot of aggressive risk. Are
you trying to mitigate equity risk but get equity like returns? Okay,
you might want to look at a Jones model hedge
fund that has lungs and shorts but has market risk.
Or are you trying to beat the bond markets? You
better go to one that doesn't take equity risk. So
(06:33):
you need to understand in advance what is it you're
trying to accomplish through that investment, and then go look
for the solution, not the other way around, just by saying, oh,
hedge funds are a good thing, let me go invest
in them.
Speaker 2 (06:45):
So that sounds a lot like another phrase I read
in the book, and acute awareness of risk. Should investors
be thinking about performance first? Should they be thinking about
risk first? Or are these two sides of the same court.
Speaker 3 (07:02):
There are two sides of the same coin, but without
a doubt, investors should be thinking about risk first. And
that's not specific to hedge funds. I would argue that's
true in all of investing. If you understand the risk
you're taking and you look for some type of asymmetry
or convexity, the rewards can take care of themselves. But
(07:23):
where you really get tripped up in hedge funds, and
there's a long history of this, going back to long
term capital in nineteen ninety eight is when risk gets
out of control.
Speaker 2 (07:32):
And long term capital management very famously blew up when
Russia defaulted on their bonds. They were leveraged one hundred
to one, so this wasn't like a bad year, this
was pretty much a wipeout. How can an investor evaluate
those risks in advance, Well.
Speaker 3 (07:51):
There are three pillars that don't go together, well, concentration, leverage,
and illiquidity. You can take any one of those risks,
but if you take two or certainly three at the
same time, that's a recipe for disaster.
Speaker 2 (08:06):
So your podcast is called Capital Allocators. Leads to the
obvious question, what percentage of capital should investors be thinking
about allocating to hedge funds, whether they're a large institution
or just a high net worth family office. Where do
we go in terms of what's a reasonable amount of
(08:27):
risk to take relative to the capital appreciation you're seeking.
Speaker 3 (08:33):
Well, if you start with a traditional risk construct, so
let's say that's a seventy thirty stock bond or sixty forty,
say seventy thirty, the question becomes outside of your stocks
and bonds, where can you get diversification? And you might
want to say, okay, I want equity like hedge funds.
And if you look at some of the most sophisticated institutions,
(08:54):
that might be as much as twenty percent of their portfolio.
The biggest difference for those institutions and the high net
worth individuals are taxes. Most hedge fund strategies are tax inefficient.
So that of that five trillion dollars, the vast majority
of it, maybe even as much as ninety percent, are
(09:14):
non taxable investors. There are only some hedge fund strategies,
and they tend to be things like activism that have
longer duration investment holding periods that make sense for taxable investors.
Speaker 2 (09:25):
So and when you say non taxable investors, I'm thinking
of foundations, endowments large, not even tax deferred, just tax
exempt entities that can put that money to work without
worrying about Uncle Sam.
Speaker 3 (09:40):
Is that is that's right? That pension funds non US
investors as well?
Speaker 2 (09:43):
All right, So if you're not you know, the yl endowment,
but you're running a pool of money, how much do
you need to have to think about hedge funds as
an alternative for your portfolio.
Speaker 3 (09:56):
You're probably in the double digit millions before think about it.
Speaker 2 (10:00):
Yeah, ten million and up, and you could start thinking
about it and then what's a rational percentage? Is this
a ten percent shift or is this something more or less?
Speaker 3 (10:10):
I know, for me individually, it's a lot less than
it was when I was managing capital for institutions. So
for me individually, it's about five percent because I need
to feel like the managers are so good that they
can make up for that tax disadvantage.
Speaker 2 (10:25):
And so taxes are part of it. Ill equidally is
part of it, and risk is part of it. Are
those Is that the unholy trifecta that keeps you at
five percent?
Speaker 3 (10:36):
Yeah, depending on the strategy. A lot of hedgehund strategies
have quarterly liquidity, so it's not daily, but they are
relatively liquid. But for sure, taxes matter, and then it's
just risk. How much risk are you willing to take
in the markets.
Speaker 2 (10:50):
And you know, since you mentioned liquidally, we hear about
gates going up every now and then, where a hedge
funnel say hey, we're we're you know, a little tight
this quarter and we're not letting any money out. How
do you deal with that? As an investor, you have
to be.
Speaker 3 (11:04):
Very careful about what the structure of your investment is.
So to take an example, in the world of credit,
distressed debt used to be bucketed in hedge fund strategies
with quarterly liquidity, but it's not a great match for
the underlying liquidity of those debt instruments. More and more
those moved into medium terms, a two to five year
(11:27):
investment vehicles, and now you see much more of that
in the private credit world that have an asset liability match.
It's much more appropriate for the underlying assets. So it's
less what the liquidity is and trying to make sure
that whatever that hedge fund manager is investing in is
appropriate for the liquidity that they're offering.
Speaker 2 (11:44):
So let's talk a little bit about performance. Before the
Financial crisis, it seemed that every hedge fund was just
killing it and printing money. Following the Great Financial Crisis,
hedge funds have struggled. Some people have said, you only
want to be in the top decile or two. What
are your thoughts on who's generating alpha and how far
(12:05):
down the line you could go before you know you're
in the bottom half of the performance track.
Speaker 3 (12:13):
Yeah, I mean, over these last fifteen years, the world
has gotten a lot more competitive. So for sure, whatever
pool of alpha is available before the financial crisis, if
it's the same pool, it's there are a lot more
dollars pursuing it, and it's been much harder to extract
those returns. So I do think it's become the case
(12:33):
that some of the more proven managers that have demonstrated
they can generate excess returns are the ones who have
commanded more dollars. And so you've seen an increased concentration
of the assets going to certain managers in the hedge
fund space.
Speaker 2 (12:47):
Let's talk about fees. Two and twenty has been the
famous number for hedge funds for a long time. Although
we have heard over the past ten years about one
in ten one in fifteen. Are we in the world
of fees.
Speaker 3 (13:02):
You don't see a lot of two and twenty. And
part of that is that fees are just determined by
supply and demand. Think of it as a clearing price
for supply and demand. So when returns generally have come down,
those strategies don't really command as high a fee structure
because the gross return is lower, the pies a little smaller.
You need to take a smaller slice of that pie.
(13:25):
The exceptions to that, of course, are the managers who
have continued to deliver, and in some instances you actually
see fees going.
Speaker 2 (13:31):
Up three and thirty.
Speaker 3 (13:33):
You've seen a deep Shaw raise their fees a year
or two go. But for the most part, that kind
of one and a half and fifteen is probably around
where the industry is.
Speaker 2 (13:43):
And there was a movement a couple of years ago
towards pivot fees or beta plus, which was, hey, we're
going to charge you a very modest fee and you're
going to pay us only on our outperformance over the market.
What happened with that movement? Did that gain any traction
or where are we with that?
Speaker 3 (14:04):
Most of the institutions would be happy to pay high
fees for true alpha, so there are always efforts to
try to figure out how do you separate the alpha
from the beta? How can we pay not much for
the beta and happy to pay a lot for the alpha.
At the same time, of the five trillion in assets,
two or three trillion have existed before people started talking
(14:26):
about that, so you already had a handshake on what
the deal is. Those handshakes often are difficult to change,
but for sure in new structures, when new capital gets allocated,
you do see that attempt to really isolate paying for performance.
Speaker 2 (14:41):
So to sum up, if you have a long term
perspective and you're not awed by some of the big
names and rock stars who occasionally put up spectacular numbers,
and you're sitting on enough capital that you can allocate
five percent or ten percent to a fund that might
be a little riskier, have a little higher tax effects,
(15:03):
but simultaneously could diversify your returns and could generate better
than expected returns. You might want to think about this space.
You really want to think closely about your strategy and
your liquidity requirements, and be aware of the fact that
the best funds may not be open to you, and
(15:26):
you may not have enough capital to put money in that.
But if you're sitting on enough cash, and if you
have identified a fund that's a good fit with your
strategy and your risk tolerance, there are some advantages to
hedge fund investing that you don't get from traditional sixty
forty portfolios. I'm Barry Ridolts. You're listening to Bloombergs at
(15:48):
the money
Speaker 3 (15:56):
Enough the body show
Bloomberg Audio Studios, podcasts, radio news, Gone.
Speaker 2 (00:14):
Gone Thinking about putting some money into hedge funds? You know,
all the rockstar names who produce eye popping returns. Chasing
that performance has led the hedge fund space to swell
to over five trillion dollars in assets, with forecasts topping
(00:37):
thirteen trillion globally by twenty thirty two. But not all
hedge funds are created equally. Investors should ask themselves is
this the right investment vehicle for me? I'm Barry Retolts,
and on today's edition of At the Money, we're gonna
discuss how you should think about investing your money in
hedge funds. To help us unpack all of this and
(00:57):
what it means for your portfolio, let's bring a Ted Side's.
Ted began his career under the legendary David Swinson at
the Yale University Investments Office. Today he's founder and CIO
of Capital Allocators and hosts a podcast by the same name.
His book, So You Want to Start a Hedge Fund?
Lessons for Managers and Allocators is the seminal work in
(01:19):
the space. So Ted, let's start out with the basics
why hedge funds what's the appeal.
Speaker 3 (01:25):
The original premise of hedge funds was to deliver an
equity like return in marketable securities with less risk than
the equity markets.
Speaker 2 (01:35):
So literally, hedged funds.
Speaker 3 (01:37):
A fund that had some hedging component that would reduce risk.
Speaker 2 (01:42):
And today I think a lot of so called hedge
funds are not exactly edged. They seem to be falling
into all sorts of different silos.
Speaker 3 (01:50):
Yeah, so hedge fund as a term became this very
ubiquitous label, And if you look at how the industries
evolve today, you have funds that fall under hedge funds
that look like that original premise of equity like returns,
and then you have a whole other set that look
more like bond like returns. And different strategies can fit
into those two different groupings.
Speaker 2 (02:12):
So I mentioned in the introduction, we always seem to
hear about the top two percent of fund managers who
are the rock stars. Anyone who puts up like really
big numbers, wildly up erform in the market sort of
gets fetted by the media and then they sort of
fade back into what they were doing. It seems to
(02:32):
create unrealistic expectations among a lot of investors. What sort
of investment return expectations should people investing in hedge funds have.
Speaker 3 (02:42):
Yeah, those expectations should be more modest than what you
might read in the press, Barry. What you just described
describes markets. People do well, they revert to the mean.
It happens in every strategy, and certainly the news sensationalizes
great perform wormants and lousy performance. So what you might
(03:02):
read in the press is these incredible renaissancement dallion fifty
percent a year with these high fees.
Speaker 2 (03:09):
Sixty eight percent. If I recall Zuckerman's book, Greg Zuckerman's
book on Jim Simon.
Speaker 3 (03:15):
Now, if you looked at hedge funds as a whole
and try to get at let's say that equity like
expected return you're talking about, like a high single digits number,
has nothing to do with sixty eight percent. Most of
the action isn't on either tail. Most of the actions
right in the middle.
Speaker 2 (03:32):
That seems to be very contrary to how we read
and hear about hedge funds in the media. Is it
that whoever's hot at the moment captures, you know, the
public's fancy and then on to the next That's not
how the professionals really think about the space, is it.
Speaker 3 (03:51):
No, that's right. I think that's generally how the media
works it investing. The news stories are the things that
are on the tail. But it's not how hedge funds
are invested in by those who have their money at risk.
They're really looking at it as risk mitigating strategies relative
(04:12):
to your say, traditional stock and bond alternatives.
Speaker 2 (04:17):
So we talk about alpha, which is outperformance over what
the market gives you, which is beta. Lately, it seems
that alpha comes from two places, emerging managers, new fund
managers who kind of identify market inefficiency, and the quants
who have seemed to be doing really well as of late.
(04:38):
What do you think about these two sub sectors within
the hedge fund space.
Speaker 3 (04:43):
Well, all of the asset management, there's this aphorism sizes
the enemy of performance, and it's certainly been true in
hedge funds that generally speaking, for a long time, smaller
funds have done better than larger funds. Not so sure
that's the case of emerging funds, which means new but
on size you get that. Now, what's an interesting dynamic
(05:04):
and it gets into the quant is more and more
money has been sucked in by these so called platform
hedge funds. So Citadel Millennium point seventy two, places like that,
where have they have multiple portfolio managers and do a
phenomenal job at risk control, and they've seemingly in good
markets and bad generated that nice equity like expective return
(05:29):
and there has to be alpha in that because there's
not a lot of beta.
Speaker 2 (05:35):
That's that's really kind of interesting. You said something in
your book that resonated with me. The best allocators establish
clear processes for evaluating opportunities and setting priorities. Explain what
you mean by that.
Speaker 3 (05:51):
Well, before you just decide I want to invest in
a hedge fund, it's really important to understand how are
you thinking about your portfolio and how do hedge funds
fit in. Now, keep in mind hedge funds can mean
lots of different things, and that the strategies pursued by
one hedge funds is going to look totally different from
another one. So you need to understand what is it
(06:12):
you're trying to accomplish. Are you trying to beat the
markets with your hedge fund allocation? Okay, you better go
to one that takes a lot of aggressive risk. Are
you trying to mitigate equity risk but get equity like returns? Okay,
you might want to look at a Jones model hedge
fund that has lungs and shorts but has market risk.
Or are you trying to beat the bond markets? You
better go to one that doesn't take equity risk. So
(06:33):
you need to understand in advance what is it you're
trying to accomplish through that investment, and then go look
for the solution, not the other way around, just by saying, oh,
hedge funds are a good thing, let me go invest
in them.
Speaker 2 (06:45):
So that sounds a lot like another phrase I read
in the book, and acute awareness of risk. Should investors
be thinking about performance first? Should they be thinking about
risk first? Or are these two sides of the same court.
Speaker 3 (07:02):
There are two sides of the same coin, but without
a doubt, investors should be thinking about risk first. And
that's not specific to hedge funds. I would argue that's
true in all of investing. If you understand the risk
you're taking and you look for some type of asymmetry
or convexity, the rewards can take care of themselves. But
(07:23):
where you really get tripped up in hedge funds, and
there's a long history of this, going back to long
term capital in nineteen ninety eight is when risk gets
out of control.
Speaker 2 (07:32):
And long term capital management very famously blew up when
Russia defaulted on their bonds. They were leveraged one hundred
to one, so this wasn't like a bad year, this
was pretty much a wipeout. How can an investor evaluate
those risks in advance, Well.
Speaker 3 (07:51):
There are three pillars that don't go together, well, concentration, leverage,
and illiquidity. You can take any one of those risks,
but if you take two or certainly three at the
same time, that's a recipe for disaster.
Speaker 2 (08:06):
So your podcast is called Capital Allocators. Leads to the
obvious question, what percentage of capital should investors be thinking
about allocating to hedge funds, whether they're a large institution
or just a high net worth family office. Where do
we go in terms of what's a reasonable amount of
(08:27):
risk to take relative to the capital appreciation you're seeking.
Speaker 3 (08:33):
Well, if you start with a traditional risk construct, so
let's say that's a seventy thirty stock bond or sixty forty,
say seventy thirty, the question becomes outside of your stocks
and bonds, where can you get diversification? And you might
want to say, okay, I want equity like hedge funds.
And if you look at some of the most sophisticated institutions,
(08:54):
that might be as much as twenty percent of their portfolio.
The biggest difference for those institutions and the high net
worth individuals are taxes. Most hedge fund strategies are tax inefficient.
So that of that five trillion dollars, the vast majority
of it, maybe even as much as ninety percent, are
(09:14):
non taxable investors. There are only some hedge fund strategies,
and they tend to be things like activism that have
longer duration investment holding periods that make sense for taxable investors.
Speaker 2 (09:25):
So and when you say non taxable investors, I'm thinking
of foundations, endowments large, not even tax deferred, just tax
exempt entities that can put that money to work without
worrying about Uncle Sam.
Speaker 3 (09:40):
Is that is that's right? That pension funds non US
investors as well?
Speaker 2 (09:43):
All right, So if you're not you know, the yl endowment,
but you're running a pool of money, how much do
you need to have to think about hedge funds as
an alternative for your portfolio.
Speaker 3 (09:56):
You're probably in the double digit millions before think about it.
Speaker 2 (10:00):
Yeah, ten million and up, and you could start thinking
about it and then what's a rational percentage? Is this
a ten percent shift or is this something more or less?
Speaker 3 (10:10):
I know, for me individually, it's a lot less than
it was when I was managing capital for institutions. So
for me individually, it's about five percent because I need
to feel like the managers are so good that they
can make up for that tax disadvantage.
Speaker 2 (10:25):
And so taxes are part of it. Ill equidally is
part of it, and risk is part of it. Are
those Is that the unholy trifecta that keeps you at
five percent?
Speaker 3 (10:36):
Yeah, depending on the strategy. A lot of hedgehund strategies
have quarterly liquidity, so it's not daily, but they are
relatively liquid. But for sure, taxes matter, and then it's
just risk. How much risk are you willing to take
in the markets.
Speaker 2 (10:50):
And you know, since you mentioned liquidally, we hear about
gates going up every now and then, where a hedge
funnel say hey, we're we're you know, a little tight
this quarter and we're not letting any money out. How
do you deal with that? As an investor, you have
to be.
Speaker 3 (11:04):
Very careful about what the structure of your investment is.
So to take an example, in the world of credit,
distressed debt used to be bucketed in hedge fund strategies
with quarterly liquidity, but it's not a great match for
the underlying liquidity of those debt instruments. More and more
those moved into medium terms, a two to five year
(11:27):
investment vehicles, and now you see much more of that
in the private credit world that have an asset liability match.
It's much more appropriate for the underlying assets. So it's
less what the liquidity is and trying to make sure
that whatever that hedge fund manager is investing in is
appropriate for the liquidity that they're offering.
Speaker 2 (11:44):
So let's talk a little bit about performance. Before the
Financial crisis, it seemed that every hedge fund was just
killing it and printing money. Following the Great Financial Crisis,
hedge funds have struggled. Some people have said, you only
want to be in the top decile or two. What
are your thoughts on who's generating alpha and how far
(12:05):
down the line you could go before you know you're
in the bottom half of the performance track.
Speaker 3 (12:13):
Yeah, I mean, over these last fifteen years, the world
has gotten a lot more competitive. So for sure, whatever
pool of alpha is available before the financial crisis, if
it's the same pool, it's there are a lot more
dollars pursuing it, and it's been much harder to extract
those returns. So I do think it's become the case
(12:33):
that some of the more proven managers that have demonstrated
they can generate excess returns are the ones who have
commanded more dollars. And so you've seen an increased concentration
of the assets going to certain managers in the hedge
fund space.
Speaker 2 (12:47):
Let's talk about fees. Two and twenty has been the
famous number for hedge funds for a long time. Although
we have heard over the past ten years about one
in ten one in fifteen. Are we in the world
of fees.
Speaker 3 (13:02):
You don't see a lot of two and twenty. And
part of that is that fees are just determined by
supply and demand. Think of it as a clearing price
for supply and demand. So when returns generally have come down,
those strategies don't really command as high a fee structure
because the gross return is lower, the pies a little smaller.
You need to take a smaller slice of that pie.
(13:25):
The exceptions to that, of course, are the managers who
have continued to deliver, and in some instances you actually
see fees going.
Speaker 2 (13:31):
Up three and thirty.
Speaker 3 (13:33):
You've seen a deep Shaw raise their fees a year
or two go. But for the most part, that kind
of one and a half and fifteen is probably around
where the industry is.
Speaker 2 (13:43):
And there was a movement a couple of years ago
towards pivot fees or beta plus, which was, hey, we're
going to charge you a very modest fee and you're
going to pay us only on our outperformance over the market.
What happened with that movement? Did that gain any traction
or where are we with that?
Speaker 3 (14:04):
Most of the institutions would be happy to pay high
fees for true alpha, so there are always efforts to
try to figure out how do you separate the alpha
from the beta? How can we pay not much for
the beta and happy to pay a lot for the alpha.
At the same time, of the five trillion in assets,
two or three trillion have existed before people started talking
(14:26):
about that, so you already had a handshake on what
the deal is. Those handshakes often are difficult to change,
but for sure in new structures, when new capital gets allocated,
you do see that attempt to really isolate paying for performance.
Speaker 2 (14:41):
So to sum up, if you have a long term
perspective and you're not awed by some of the big
names and rock stars who occasionally put up spectacular numbers,
and you're sitting on enough capital that you can allocate
five percent or ten percent to a fund that might
be a little riskier, have a little higher tax effects,
(15:03):
but simultaneously could diversify your returns and could generate better
than expected returns. You might want to think about this space.
You really want to think closely about your strategy and
your liquidity requirements, and be aware of the fact that
the best funds may not be open to you, and
(15:26):
you may not have enough capital to put money in that.
But if you're sitting on enough cash, and if you
have identified a fund that's a good fit with your
strategy and your risk tolerance, there are some advantages to
hedge fund investing that you don't get from traditional sixty
forty portfolios. I'm Barry Ridolts. You're listening to Bloombergs at
(15:48):
the money
Speaker 3 (15:56):
Enough the body show
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