Hedge funds failure rate

some may say this is basic: basic doesn't mean easy to implement.. at least in my case!

some ppl may have more confirmation bias and are less greedy. in any case it's good to educate yourself and practice with money you can afford to burn.

These may not be hedge funds, but fund management companies which call themselves hedge funds.
They attract large amount of investor capital and call themselves a hedge fund.
A true hedge fund may be one that manages pension fund that is registered with the government.
They are authorized to trade on behalf of the public institutions, and are regulated.


But the management of these "hedge funds" are fresh graduates from universities holding a finance degree with no prior trading/investing experience.
What they are good at is in fundamental and technical analysis, only on theory.
Of course, they can build wonderful looking models and do intensive analysis on the economy with "A" grade reports.
And some of these "hedge funds" have sales people as their management. They will say big words like they know the market very well. In fact, no one can predict the market.

And they also can't afford to pay huge fee to employ more experienced staffs to work for them, and yet they want to house themselves in luxurious office buildings just to boost to the clients they are well-to-do. Most of them are startups with less than $1m paid up capital.

Hedge funds need to borrow in order to hedge their trades. If the liquidity runs low, they are in trouble.
Bigger funds need bigger loans. Where can you find bigger loans nowadays? Will the bank trust you?

If they lose, the investors will withdraw their capital, and sue them to bankruptcy. Once a community of investors withdraw, the rest will follow suit due to negative reputation. When the fund decreases in size, the hedge fund is no longer able to trade effectively. Drawdown increases on existing trades, due to downsizing fund.

The cash flow of a hedge fund usually run into negative territory due to expenses needed to pay off the huge office rental and "smart looking" employees. And not forget about the management staffs who pay themselves millions to afford a castle and Lamborghini. There is a fixed and variable cost. Worse if you use computers to trade the market. That eats up electricity.

What you stated is NOT true. Hedge funds are NOT pension funds. They have clearly different objectives.
Hedge fund are not startups by fresh graduates. Honestly, do you think fresh graduates with no prior experience will be able to secure investments/loan to even set up their funds? I highly doubt that any investor will be so dumb to invest in someone with no experience. Venture capitalist aside.

Yes it is quite true that most hedge funds hire marketers and/or salespeople. But that is the nature of the game. The larger their AUM, the more comissions they get.
It is also quite true that negative returns will cause some investors to pull out their capital. This is the challenge for hedge funds. How do you convince investors that negative returns are only temporary?

Overall, I don't understand your arguement nor your reasoning for putting down hedge funds. In fact, we can learn a thing or two from them to improve our trading on.
Don't mean to sound rude but I felt I had to respond to your comment

It is basic comprehension skills. Please read again my statements.
These statements are unedited, and as is.

"These may not be hedge funds, but fund management companies which call themselves hedge funds."
"A true hedge fund may be one that manages pension fund that is registered with the government."
(A pension fund can be managed by a multiple number of hedge funds to diversify the risk.)
"The management of these "hedge funds" are fresh graduates from universities holding a finance degree with no prior trading/investing experience."

In the country which you trade from, we have a number of fund management firms, but due to strict regulation, they cannot be quantified as a hedge fund.
If it is in overseas, there will be many "hedge funds" around. Small ones can also be called a hedge fund. It has to do with the paid up capital, experience of staffs, and so fore.
How I know? I worked for a local fund management firm before. It couldn't get itself registered as a hedge fund, and need to inform all its clients that come.
It has 2 finance PhDs who are already millionaires. They also have their performance audited by lawyers.
One of them has joined a bigger fund management firm with other PhDs. This company is founded by an existing university professor. They are all experienced. And still, the bigger fund management firm cannot be quantified as a hedge fund.
If it is in other countries, I believe it is easier to be registered as a hedge fund.

Regarding failure of hedge funds, it may also have to do with their inability to handle black swan events.
Failure rate has to do with the time period in which the hedge fund is operating.

Ever since the last financial crisis, the surviving hedge funds have been researching investment models to deal with black swan events.

Because of that, the overhead has increased, and this may not turn into performance gain for the customers.
Profit will certainly drop if they use investment models that deal with black swan events.

Actually, monkeys are more accurate https://www.forbes.com/sites/rickfer.../#5432e04e630a

Yeah, LOL