http://allaboutalpha.com/blog/2009/07/16/more-evidence-that-the-amount-of-juice-used-by-hedge-funds-was-never-as-great-as-many-assumed/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Fri, 19 Mar 2010 07:52:26 +0000 http://wordpress.org/?v=abc hourly 1 http://allaboutalpha.com/blog/2009/07/16/more-evidence-that-the-amount-of-juice-used-by-hedge-funds-was-never-as-great-as-many-assumed/comment-page-1/#comment-175164 PD CAIA Wed, 29 Jul 2009 05:46:54 +0000 http://allaboutalpha.com/blog/?p=5018#comment-175164 two comments: 1. The McKinsey numbers pale by comparison with the other alpha-seekers of our world, the banks' prop desks. Total unlevered assets, if you can estimate them, for i-banks, would have been 2-3 times that of the h-fund industry. And leverage was stratospheric - I remember GS in November 2008 underling their prudence in reducing their leverage to only 16x. Sixteen Times. I'd take a wild guess that, if you factor this into McK's numbers, you'd get a range from more like US$20tn to US$3tn (note - "guess" - don't quote me!). The reduction in the firepower of the h-fund industry is tiny compared with that of the i-banks... 2. ...so the amount of alpha-seeking capital has imploded, maybe down by 90% in some markets/sectors, and hence returns on capital currently invested should be much higher than the period 2003-2007 - so those managers below high water mark may recover it more quickly than McK estimate. I suspect relatively few managers will close because they're too far below HWM (as they still retain the long-term optionality of their revenue stream) tho' we are seeing and will continue to see managers close because the size of their assets is not longer viable. two comments:
1. The McKinsey numbers pale by comparison with the other alpha-seekers of our world, the banks’ prop desks. Total unlevered assets, if you can estimate them, for i-banks, would have been 2-3 times that of the h-fund industry. And leverage was stratospheric – I remember GS in November 2008 underling their prudence in reducing their leverage to only 16x. Sixteen Times. I’d take a wild guess that, if you factor this into McK’s numbers, you’d get a range from more like US$20tn to US$3tn (note – “guess” – don’t quote me!). The reduction in the firepower of the h-fund industry is tiny compared with that of the i-banks…
2. …so the amount of alpha-seeking capital has imploded, maybe down by 90% in some markets/sectors, and hence returns on capital currently invested should be much higher than the period 2003-2007 – so those managers below high water mark may recover it more quickly than McK estimate. I suspect relatively few managers will close because they’re too far below HWM (as they still retain the long-term optionality of their revenue stream) tho’ we are seeing and will continue to see managers close because the size of their assets is not longer viable.

]]> http://allaboutalpha.com/blog/2009/07/16/more-evidence-that-the-amount-of-juice-used-by-hedge-funds-was-never-as-great-as-many-assumed/comment-page-1/#comment-170311 Friday links: conflicting signals Abnormal Returns Sat, 18 Jul 2009 15:27:33 +0000 http://allaboutalpha.com/blog/?p=5018#comment-170311 [...] How the hedge fund boom and bust paralleled that of the dot-com bust.  (All About Alpha) [...] [...] How the hedge fund boom and bust paralleled that of the dot-com bust.  (All About Alpha) [...]

]]> http://allaboutalpha.com/blog/2009/07/16/more-evidence-that-the-amount-of-juice-used-by-hedge-funds-was-never-as-great-as-many-assumed/comment-page-1/#comment-170214 Anonymous Fri, 17 Jul 2009 22:35:32 +0000 http://allaboutalpha.com/blog/?p=5018#comment-170214 How does one factor in the billions of dollars lost to fraudulent hedge funds, and how is that reflected in the charts? How does one factor in the billions of dollars lost to fraudulent hedge funds, and how is that reflected in the charts?

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