Jim Simons’ Second-Rate Ideas Will Have To Do

They’re better than anyone else’s best ideas, so, you know.
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By Gert-Martin Greuel [CC BY-SA 2.0 de], via Wikimedia Commons

By Gert-Martin Greuel [CC BY-SA 2.0 de], via Wikimedia Commons

The hedge funds promised: Just get rid of this black Obama guy and replace him with a semi-literate madman who oozes market volatility from the two fingers he uses to tweet out threats of war—trade, nuclear, whatever—and we’ll be back. It’ll be like two decades ago, when we were kings among men, masters of the universe, applying our Midas touch to making the very rich very, very, very rich, and ourselves very, very, very, very, very rich. You’ll see. And so we have.

The results for the first six months are now in — and they shatter the myth of hedge funds thriving in turbulent markets…. Hedge funds, on average, underperformed the Standard & Poor’s 500-stock index yet again.

This leaves investors in a bind. They won’t stop pouring billions of dollars into the hedge fund space, because there’s nowhere else to go. So, yes, they’ll eagerly take whatever scraps Peter Brown or John Overdeck or Igor Tulchinsky will offer them, even if they could get Tulchinsky’s good stuff by investing with Izzy Englander. And they’ll do so uncomplainingly, or else.

They can invest in the “open” funds of these successful managers. The results of these open funds generally aren’t as strong as the exclusive, employee funds, and they can carry an array of potential conflicts, investors say.

Despite the drawbacks, investors have been choosing this option en masse, making these outside funds among the hottest products on Wall Street….

After big European hedge fund BlueCrest Capital Management launched an internal fund for its partners in 2011, it saw much better returns compared with funds BlueCrest offered to outsiders, investors say. Advisory firm Albourne Partners Ltd. raised questions about how the fund was run. Eventually, BlueCrest closed its outside funds, and now the firm’s founder, Michael Platt, runs a fund trading his own money.

These Hedge Funds Are Doing Great but Don’t Want Your Money [WSJ]
Hedge Funds Should Be Thriving Right Now. They Aren’t. [NYT]

Related

This Is A Story About A Guy Telling A Random Dude On The Street "I'm actually building a hedge fund that uses quantitative strategies to pick stocks" And That Dude Actually Being Jim Simons

Something we've long-maintained around the Dealbreaker office is that hedge fund manager Jim Simons would make a great fairy godmother, what with his soothing voice, white beard, and the fact that he's really just a lovable math teacher who happened to make a zillion dollars by tinkering away the computers in his garage and would be happy to lend the powers of his magic cigarette wand to those in need.  So we were extremely pleased to have our attention brought to an anecdote from Scott Patterson's Dark Pools, in which Simons seems to appear out of nowhere, just like a FGM would, sprinkles unexpected gifts on a young man and woman (of both hope* and nicotine), and then disappears as quickly as he came via golden carriage. (We also appreciate that Simons is the kind of FGM that will laugh in your face as you explain to him what a quant fund is, not realizing he's got some experience there.) One day in the summer of 2006, Fleiss was having lunch outdoors with his girlfriend at a restaurant on the Upper East Side. As they chatted in the sun after their meal, an elderly man dressed in a modest suit walked out of the restaurant and lit up a cigarette. Fleiss's girlfriend bummed a smoke off him, and they began to chat. "So what do you do?" he asked Fleiss. "I'm actually building a hedge fund that uses quantitative strategies to pick stocks," he said. "Oh really?" The man laughed. "Where did you go to school?" "Amherst." "Good school. You know, I'm also in the quant biz." Fleiss asked where he worked, but the man wouldn't answer. But Fleiss kept pushing. Finally, the man said he ran a fund called Renaissance Technologies. Fleiss nearly fell out of his chair. He wanted to talk more, but a gleaming Bentley had just pulled to the curb and Jim Simons quickly disappeared into it. Dark Pools [Scott Patterson] Related: Who Wants to Become A Rebellion Research Investor? *That some of his quant-i-ness would rub off on the guy.