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Old 02-06-2015, 12:47 PM   #21
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Originally Posted by Mulligan View Post
They showed on the screen something like 1.2% in fees vs. the .05, but didn't mention any take on the gains. Either that was omitted or maybe Buffet was playing nice and not going to count that against him.


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I an surprised that is not included, as that is one standard reason hedge funds are expensive. Too bad they don't refund 20% of the losses, either. People investing in them are hoping to have the fund "hit one out of the park", so they don't care about the cut of the gains. But, gee, 2% of the AUM is also horrendous.

Ooo - ouch, adrift! 3% and up to 50% of the profits. And insider trading too?

That seems to skirt close to the Manoff fraud.

These aren't like mutual funds where you have a board looking over the fund managers and what is owned is public. These hedge funds look ripe for fraud.
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Old 02-12-2015, 09:33 AM   #22
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Here's another article about the bet, sent to me from another ER member. Thought I'd add it to the discussion. It's from the CFA Institute - Betting with Buffet Seven Years Later

There's a fair amount of "sort of" acknowledging that they (hedge funds) are losing, with a liberal sprinkling of "not fair". The S&P isn't the appropriate index to compare against, it's the Fed's fault, it's not really the fees, we might do better in the next three years, etc. But there's a good chart in there that show's that over half of the underperformance of hedge funds is due to fees. But a lot of good information in the article, not the blurb format of the others I've seen.

My favorite part of the article is where they talk about how they invested the money for the million dollar payoff to charity. They originally (2007) put $640K into a zero coupon bond at 4.5%, so it had grown to $950K by the end of 2012. They then moved it into BRK stock, and it had grown to $1.6M by the end of 2014!
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Old 02-12-2015, 09:55 AM   #23
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I agree that S&P 500 can be argued as an inferior benchmark compared to global hedge funds. The MSCI world index is better.

Guess what: it still outperforms our fund of hedge funds

While the explanation where the difference comes from is interesting, it is also irrelevant in so much that all of the explanations are structural factors:
  • Stock loan fees are a part of their business
  • Management fees obviously too
  • Beta mismatch implies there is lower volatility in hedge funds, is that true?
  • Market exposure is a non-issue: hedge funds are free to choose where they put their money, that's the whole point.


All this points to the same conclusion: any outperformance within the (fund of) hedge funds results in the managers getting rich, not the customers.


As I argued elsewhere, there still might be value in going with a hedge fund for a small part of your portfolio to diversify and/or experiment, but not for the bulk of your capital.
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Old 02-12-2015, 10:17 AM   #24
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Originally Posted by harley View Post
Here's another article about the bet, sent to me from another ER member. Thought I'd add it to the discussion. It's from the CFA Institute - Betting with Buffet Seven Years Later

There's a fair amount of "sort of" acknowledging that they (hedge funds) are losing, with a liberal sprinkling of "not fair". The S&P isn't the appropriate index to compare against, it's the Fed's fault, it's not really the fees, we might do better in the next three years, etc. But there's a good chart in there that show's that over half of the underperformance of hedge funds is due to fees. But a lot of good information in the article, not the blurb format of the others I've seen.

....
Wow, what a bunch of losers!

Regarding the S&P 500 benchmark, check this one (bold mine):
Quote:
We believe the S&P 500 is not an appropriate benchmark for a portfolio of hedge funds. That said, it’s hard to fault Warren for choosing the S&P 500 as a proxy.

Ummm, "hard to fault Warren"? You made the bet, right? You agreed to the conditions, right? But now, after the fact, it is not an appropriate benchmark? Oh, but you're not going to fault Warren for your apparent mistake? How big of you. Grow a pair!

What a long list of weak excuses. From the wrong benchmark, to low interest rates, to the US market wasn't supposed to do so good and international wasn't supposed to do so bad (but I thought you guys were supposed to 'know' these things?), to 'how about best 2 out of 3?'. Pathetic.

Reminds me of:



Warren should make this on ongoing bet, keep it running for every year for every 10 year period until they cry 'Uncle'!

I wonder if the numbers are available for a backtest throughout the 90's and 00's?

-ERD50
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Old 02-13-2015, 09:13 AM   #25
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Here's another article about the bet, sent to me from another ER member. Thought I'd add it to the discussion. It's from the CFA Institute - Betting with Buffet Seven Years Later
Codswallop and tarradiddle! This is one for the ages. What a great link, harley!

For others, the essay is written by one of the hedge fund managers that made the bet with Mr. Buffet, "explaining" the apparent poor performance . His response here is classic BS. Distract with meaningless statistics, world class spin and double-talk. Say the benchmark is the wrong one, then blame the Fed. He even calls Mr. Buffet's strategy a "headwind".

This part is true marketing
Quote:
As we intend to show, the residual performance after adjusting for the impact of this investment environment manifests a return stream that could have been beneficial to a diversified portfolio of risk assets under different circumstances.
Translation - we're not losing, we just need to adjust for the difference in score.
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Old 02-14-2015, 01:28 PM   #26
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Codswallop and tarradiddle! This is one for the ages. What a great link, harley! ....
And there was another part, if I'm reading between the lines correctly, they are trying to make points by showing that old Warren isn't always right. Well old Warren said that we would trail the index due to the drag on fees, but we actually did worse! Hah! Warren doesn't know what he is talking about! It wasn't just fees, we under performed even w/o the dang fees! So take that!



Quote:
Buffett’s case implies that the market should win by approximately the amount of fees paid to the hedge fund and fund of funds managers. However, after seven years of live action, the lead taken by the S&P 500 is substantially more than the difference in fees would suggest.

Just over half (24.4% ÷ 43.9% = 55.6%) of the underperformance by hedge funds can be attributed to fees. A full 19.5% of cumulative underperformance, or approximately 2.6% per annum, must have been caused by something else.
Yep, Warren was way off - only half of our under performance was due to fees. The other half was our own incompetence! We showed him!

Seriously, why did they respond? They just dug deeper and deeper. If I were in their (fancy Italian designer) shoes, I'd wait out the full ten years and hope for a miracle, or at least a little closing in the gap.

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