The Hedge Fund Bubble has Burst

[badcompany]

In the words of Goerge St. Pierre, "I'm not impressed by their performance."

IMO, too many are using the same strategies, and are getting worked by the Market Makers viz. the big banks.

This is not uncommon in stock market history: a strategy works for a while and then just stops.


http://i95.photobucket.com/albums/l142/thinlizzy21/0f0fc06ba18c3c33bd7b0e218d65902d_zps961a0795.jpg

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A long/short strategy, by its nature, will underperform in a sustained bull market. The managers have to be crazy good to be making money on shorts in a market where, until recently, all boats were floating on a rising tide.

No one wants to pay the obscene fees for underperformance so it's no shock a lot of firms are closing funds. The same managers that ran some of the closed funds will be back once there is a downturn.

Human nature is to do what worked last time. You had a blossoming of these funds after 2007/2008 when everyone saw they could make money in a down market. You'll see the same thing again after the next one.

[badcompany]

A long/short strategy, by its nature, will underperform in a sustained bull market. The managers have to be crazy good to be making money on shorts in a market where, until recently, all boats were floating on a rising tide.

No one wants to pay the obscene fees for underperformance so it's no shock a lot of firms are closing funds. The same managers that ran some of the closed funds will be back once there is a downturn.

Human nature is to do what worked last time. You had a blossoming of these funds after 2007/2008 when everyone saw they could make money in a down market. You'll see the same thing again after the next one.

It's not just the long/short that have underperformed. It's across the board.

IMO, it's the leverage. They get pushed off of positions by 5-10% drops and then have to buy back at higher prices.