Famous gambler says hedge funds can’t beat the dealer forever
Aug 21st, 2007 | Filed under: Hedge Fund Industry Trends
Reuters reports that the hedge fund attrition rate may double in the next five years due to the recent market calamities.
“By early 2008 the industry’s annual 8 percent failure rate could be nearly double, experts said, and within five years perhaps only two-thirds of the estimated 9,800 funds now operating worldwide will exist.”
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[...] Famous gambler says hedge funds can’t beat the dealer forever [...]
Someone at Reuters needs to take algebra again, or provide us with more details on their calculation. At an 8% decay rate, one will be at 2/3rds the original pool in 5 years. At double the rate, roughly 2/5ths of the original pool. Perhaps the missing link is an 8% creation rate, leaving things static now, but at 2/3rds the original size if the decay rate should double?
If hedge funds are mature in terms of percentage of total assets, we should expect the number of players to shrink. Many smaller firms will be at a competitive disadvantage. Both Thorp and the guy at Reuters can be right here.