Hedge funds failure rate | Forex Factory

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Hedge funds failure rate

  • #1
  • First Post: Jan 25, 2018 8:40am Jan 25, 2018 8:40am
Anybody did a research on this subject ?

I read crazy numbers like 80% but it seems a bit exaggerated.
  • #2
  • Jan 25, 2018 9:01am Jan 25, 2018 9:01am
Quoting HeyYou
Anybody did a research on this subject ? I read crazy numbers like 80% but it seems a bit exaggerated.
Anecdotal to be sure, but hedgies are just you and me with a lot more capital to play with. If you cannot double 100 dollars you cannot double 1MM and vice versa.
If you are good at something, never do it for free--Joker
  • #3
  • Jan 25, 2018 9:12am Jan 25, 2018 9:12am
yeah jmn, but they are far more prepared than me and you. I think one has to invest years in training/education before starting a hedge fund.
  • #4
  • Jan 25, 2018 10:17am Jan 25, 2018 10:17am
Quoting HeyYou
yeah jmn, but they are far more prepared than me and you. I think one has to invest years in training/education before starting a hedge fund.
Nope. All you need is the capital to get the needed certifications and the ability to build a client base, and you too, can be a hedge fund. I would also submit to you that it takes years in training and education to be a good trader as well. Look at some the questions on some of these threads.
If you are good at something, never do it for free--Joker
  • #5
  • Jan 25, 2018 10:32am Jan 25, 2018 10:32am
Quoting jmn5611
{quote} Nope. All you need is the capital to get the needed certifications and the ability to build a client base, and you too, can be a hedge fund. I would also submit to you that it takes years in training and education to be a good trader as well. Look at some the questions on some of these threads.
  • #6
  • Jan 25, 2018 10:56am Jan 25, 2018 10:56am
now the question is, would you trust hedge funds ?
  • #7
  • Jan 25, 2018 10:58am Jan 25, 2018 10:58am
just like any profession; you always find 80% or more losers

not all bakeries profitable; eventhough we are eating that bread !

of all trades (including hedgies) farmers are the one paying the deer price of failure. waiting for a year for the crop; only to go belly up; is hard.
  • #8
  • Jan 25, 2018 11:00am Jan 25, 2018 11:00am
Most of them are just monkeys in suits.
  • #9
  • Jan 25, 2018 11:19am Jan 25, 2018 11:19am
Quoting HeyYou
now the question is, would you trust hedge funds ?
You need to treat each one on its own merits, and perform your own due diligence.
  • #10
  • Jan 25, 2018 7:05pm Jan 25, 2018 7:05pm
ok.. this might read as though i think i know what im talking about, but if you could just humour me.

Firstly, anyone who has worked in a hedge fund for while should know better than to say he/she works at a hedge fund. Best described as a private investment company or something like that. If you say hedge fund you can see the person quickly looking around for some sort of weapon with which to hurt you a lot, typically an iron bar.

There is a large range of different types of hedge funds. All sorts of different equity categories, credit funds, emerging market funds, systematic, private equity, etc etc.. a long list.

The category most comparable to this space are macro trading hedge funds, so i shall stay with those.

All hedge funds have their partnership group as a big part of the AUM in that fund. Investors insist on this. In fact, in most cases the biggest single investor will be the partners of that hedge fund.

fee structure historically: 2/20. 2 percent mgmt fee and 20 percent of the profits. This structure has come down a lot in the last few years as returns have been very poor. For example very very few macro hedge funds made money last year and the prior years returns have been low (sub 5% type low). if you want to charge 2/20 type stuff you better deliver.

There seems to be a bit of a tone in this forum that professional traders all make money. Let me tell you, that ain't the case!
There are very few traders that make money. Well, to be a clearer on that: i know many traders that can make money, but i know very very few traders that can keep that money and go on to make more money. There will be market conditions that suit every trader at some point so every one will have periods when they can make money. Adapting and surviving in all markets conditions is a different story.

In my market life in don't think i could name more than 10 traders that i could honestly say will make money.
The small handful of those that come to mind are very very good.
As to hedge funds being monkeys in suits. Im not sure that is entirely fair. Yep, there are plenty of grubs around but for the most part they are just people trying to deliver returns for their investors in an honest and honourable fashion.

There is other stuff but i have probably bored anyone reading this already

Im just tossing up whether or not to delve into win rates, and leverage in hedge funds etc, as they are very very different to what i see on this forum.

I think i shall leave that stuff actually as i will probably get called all sorts of rude names that will shatter my life forever.

So, did i sound like i knew what i was talking about?
I could probably bluff my way through answering other hedge fund type question if anyone has any
  • #11
  • Edited 7:49pm Jan 25, 2018 7:25pm | Edited 7:49pm
Quoting alphadude
just like any profession; you always find 80% or more losers not all bakeries profitable; eventhough we are eating that bread ! of all trades (including hedgies) farmers are the one paying the deer price of failure. waiting for a year for the crop; only to go belly up; is hard.
I disagree. As someone who used to take pride in being a polymath/Jack-Of-All-Trades I have spent a fair amount if time as a hobby botanist as well. There are an incredible number of parallels but it is easier to learn to grow crops than it is to trade because there is far less misinformation that you need to sift through with trial and error. There are crop-specific issues but most problems can easily be identified before they get out of hand. Not enough nitrogen? Yellow leaves. Too hot? Nutrient burn/wilting/stunted growth with curling leaves. Magnesium? Spots. There are of course catastrophic problems such as pests... and root rot? You're mostly fucked. But that's why farmers often hedge and insure their crops.

Plus if it's a broad problem that affects more than just your crops but everyone else's as well then the value goes up. They're also the first to know what's going on if things turn sour.

With trading the problems are much harder to identify and correct before losses become catastrophic.
"The fun is in the hunt. Not the kill."
  • #12
  • Jan 25, 2018 7:30pm Jan 25, 2018 7:30pm
Quoting mollyellie
There is other stuff but i have probably bored anyone reading this already Im just tossing up whether or not to delve into win rates, and leverage in hedge funds etc, as they are very very different to what i see on this forum.
You should expand more on these areas.... It will be an insight to us retail traders... IF we listen...

IMO the one reason most funds of any kind fail is due to poor performance (Duh!). But not the blowup your capital kind of performance. Rather, its more like a few consecutive years of negative returns and investors lose confidence and pull out their money.
I look for value wherever it can be found
  • #13
  • Jan 25, 2018 8:03pm Jan 25, 2018 8:03pm
Quoting synicz
{quote} You should expand more on these areas.... It will be an insight to us retail traders... IF we listen... IMO the one reason most funds of any kind fail is due to poor performance (Duh!). But not the blowup your capital kind of performance. Rather, its more like a few consecutive years of negative returns and investors lose confidence and pull out their money.
..

Ok. win rates.. i talk winning days agst losing days not winning trades agst losing trades. (if one has a large s/l and a small t/p then it is easy to have a high winning trade percentage and not be profitable).

I have seen countless traders track records and i reckon i know what performance profiles look like. I think i can see what is unusual and what outliers look like etc etc.

I talk in terms of say a minimum three years of performance data by he way.

60 % winning days is about as high as it gets. Anything above that is met with suspicion. (option based strategies and some other strategies have a different profile as they will look more like an annuity).

so lets say 60% (which is high). Ones losing streaks can extend for quite a while. it is common to have say 5 down days in a row followed by a couple of small up days then a few down days again. It sucks, but it happens.

That leads to leverage.

I honestly cannot get my head around some of the leverages that are spoken of on this forum.. 100;1.. 200;1 etc.. Thats s financial suicide.. Maybe not today or tomorrow, but it will blow up. For whole range of reasons.
No sustainable trader(well none that i know anyway) would go anywhere near that. i cant imagine that anyone would recommend this type of leverage. Wwere on earth does that come from.

There are a couple of levels of leverage in hedge funds but to cut a long story short he total leverage will be about 3 or 4.
That being said there will be occasions when a portfolio manager will really want to go after a trade and the risk will be ramped up a lot.

And there is a difference here with retail traders as hedge funds are trading other peoples money who often want to see a certain type of profile. And extreme volatility will be not on that list. So trading your one money one can ramp it up, but 100;1 etc? nope

So if a hedge fund has say 1b under mgmt, it will allocate to the portfolio managers about 3b in notional capital.

that of any use?
  • #14
  • Jan 25, 2018 8:46pm Jan 25, 2018 8:46pm
Quoting mollyellie
{quote}.. Ok. win rates.. i talk winning days agst losing days not winning trades agst losing trades. (if one has a large s/l and a small t/p then it is easy to have a high winning trade percentage and not be profitable). I have seen countless traders track records and i reckon i know what performance profiles look like. I think i can see what is unusual and what outliers look like etc etc.
I agree with most of what you say. And I feel that main killer is that most retail traders do not have proper risk managment (Which encompasses SL, leverage, diversification). Followed second by extreme short-termism. And lastly, trading without a proper strategy/plan.

Conversely, funds and institutions have policy safeguards in all these areas.
E.g Policies such as when you are down X% for the month you stop trading till the next month, trade to take up no more than Y% of portfolio, well defined strategy, some have a team of traders each with their own expertise, quarterly/annual performance reporting instead of the daily/weekly performance that retail traders focus on.

Guess the thing we retail traders need is proper education...
I look for value wherever it can be found
  • #15
  • Jan 26, 2018 1:32am Jan 26, 2018 1:32am
Quoting synicz
{quote} I agree with most of what you say. And I feel that main killer is that most retail traders do not have proper risk managment (Which encompasses SL, leverage, diversification). Followed second by extreme short-termism. And lastly, trading without a proper strategy/plan. Conversely, funds and institutions have policy safeguards in all these areas. E.g Policies such as when you are down X% for the month you stop trading till the next month, trade to take up no more than Y% of portfolio, well defined strategy, some have a team of traders each...
or alternative, retail traders would need also capital, and a lot.
a hedge fund having a lowish 100 million AUM can collect a 2 million management fee, before come to profit incentives.
that 165k a month.
should be enough for office infrastructure and the salaries of couple ppl.

give 99% of retail hopefuls 20k salary, and watch how quickly they will be happy to swing for 1% gains a month low risk.

and if they can produce that 1% a month, wont take too long until they have more assets lining up.

vs.
where are average retail hopefuls?
most at 0-10k funds, ( probably majority of accounts are sub-1k) and with profit expectations that run from a min 10% a month to often 100s of % if not higher.

the 2 scenarios just rarely seem to cross.
add to this the barrier that will let someone easily start to raise capital to even the range of 1-10 million.
add to this that 1k track record, even if running for years @ 20%/yr profit wont impress enough to open many of the bigger doors to investors
add to this the time invested that in a 1k account example @20%/yr the monthly gain will be only about 16$...hardly appealing enough to stick to the safe numbers, or spend considerable time.
after all being the office cleaner would make more income than that!, 1000s of % more, than a not viable full-time trading gig based on a few k.

as for the education part:
i dont think there is that much practical difference there.
one doesnt need to have a PhD in economics to make money trading, maybe a reason why most PhDs make there living teaching, etc.
there is always, always another trade!!
  • #16
  • Jan 26, 2018 2:27am Jan 26, 2018 2:27am
Quoting profitfarmer
{quote} or alternative, retail traders would need also capital, and a lot....
Yes I fully agree with you that most retail traders are undercapitalized as well as have unrealistic goals.

However for the education aspect I do stand my ground. Basic knowledge such as economics, finance, maths are essential to becoming a profitable trader.
Of course there might not be a need to have a phd. But I do view that many retail traders will stand to benefit if they have some of these knowledge combined with pratical trading knowledge.


On unrelatd topic, I noticed that you have quite an impressive trading record. Impressive max drawdown too. Keep it up
Its hard to find someone with a record like yours.
I look for value wherever it can be found
  • #17
  • Jan 26, 2018 3:09am Jan 26, 2018 3:09am
Quoting synicz
{quote} Yes I fully agree with you that most retail traders are undercapitalized as well as have unrealistic goals. However for the education aspect I do stand my ground. Basic knowledge such as economics, finance, maths are essential to becoming a profitable trader. Of course there might not be a need to have a phd. But I do view that many retail traders will stand to benefit if they have some of these knowledge combined with pratical trading knowledge. On unrelatd topic, I noticed that you have quite an impressive trading record. Impressive max...
thanks of the off comment.
true. it looks good. and i intend to keep it both that level and slowly capitalize on it too. that involves some prop trading.
(of course my focus is on the downside more than the upside.)
without the proper education, but hopefully with a proper expectation it can be done.
there is always, always another trade!!
  • #18
  • Jan 26, 2018 10:31am Jan 26, 2018 10:31am
Quoting profitfarmer
as for the education part: i dont think there is that much practical difference there. one doesnt need to have a PhD in economics to make money trading, maybe a reason why most PhDs make there living teaching, etc.
I include self-education. as retailers we need to educate ourselves, since 99.9% of the "education" out there is garbage.

but as I understand what makes us fail as traders (both retailers and institutional) is the lack of TRAINING.

we think we're ready because we learned some good strategy, but practically we s**k.



as for the rest... sad truth

it's high risk business for the average retailer. I wouldn't say it's 100% gambling but close to that.
  • #19
  • Jan 26, 2018 10:45am Jan 26, 2018 10:45am
Quoting HeyYou
{quote} I include self-education. as retailers we need to educate ourselves, since 99.9% of the "education" out there is garbage. but as I understand what makes us fail as traders (both retailers and institutional) is the lack of TRAINING. we think we're ready because we learned some good strategy, but practically we s**k. as for the rest... sad truth it's high risk business for the average retailer. I wouldn't say it's 100% gambling but close to that.
high risk business...the "education" should then be more focused to open up the retailers eyes that the risk is relative easily adjustable most case.
all matter of tuning down the greed, and getting slightly more realistic on what likely and unlikely to achieve with different risk profiles.
there is always, always another trade!!
  • #20
  • Jan 26, 2018 10:54am Jan 26, 2018 10:54am
Quoting profitfarmer
{quote} high risk business...the "education" should then be more focused to open up the retailers eyes that the risk is relative easily adjustable most case. all matter of tuning down the greed, and getting slightly more realistic on what likely and unlikely to achieve with different risk profiles.
removing greed also comes with practice.

I had to blow several small accounts to learn the importance of not being greedy. what about confirmation bias ? we can't just make it disappear by reading a book on trading psychology.
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