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Alternative Investments

Venture Capital & Private Equity

Hedge Funds

The hedge fund, it is said, is not an investment strategy but a compensation strategy.
Jack Bogle in The Little Book of Common Sense Investing

"There is an argument to be made that some hedge funds (perhaps more than a few) are merely a wealth transfer mechanism for moving money from the gullible wealthy to the savvy manager."
Barry Ritholtz30

The sector timing ability and average style choices of hedge funds are no better than that of mutual funds. Additionally, we fail to find differential ability between hedge funds. Overall, our study raises serious questions about the proficiency of hedge fund managers.
John Griffin and Jin Xu34

Most hedge funds should be out of business.
Michael Livian44

"...many high-net-worth individuals, the other big group of hedge fund investors, are incorrigible gamblers. Despite the lackluster performance of equity hedge funds, the best managers among them have delivered eye-popping returns, and investors can’t resist trying to pick the winners."
Nir Kaissar50

The relationship between stocks, private equity, hedge funds, private real estate, and REITs


Chapter 17 Notes - The Footnotes in the Book are sequential and for this chapter start at #309 and end at #371.
These notes are provided for those that have purchased the book and would like to access the notes and links directly.


1. http://www.pewtrusts.org/~/media/assets/2017/04/psrs_state_public_pension_funds_increase_use_of_complex_investments.pdf
2. https://medium.com/correlation-ventures/venture-capital-no-were-not-normal-32a26edea7c7
3. http://faculty.chicagobooth.edu/steven.kaplan/research/kaplanlerner.pdf
http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6622.2010.00272.x/abstract
4. “Venture-Capital Firms Caught in a Shakeout,” Wall Street Journal, March 9, 2010 https://www.wsj.com/articles/SB10001424052748703915204575104221092909884
5. https://nvca.org
6. http://www.pionline.com/article/20100413/ONLINE/100419970
7. https://www.cbinsights.com/research/report/corporate-venture-capital-trends-2018/
8. https://www.preqin.com/insights/special-reports-and-factsheets/preqin-and-first-republic-update-us-venture-capital-in-q1-2019/25959
9. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2053258
10. Robert Harris, Tim Jenkinson, and Steven Kaplan, “Private Equity Performance: What Do We Know?” Journal of Finance, October 2014 http://onlinelibrary.wiley.com/doi/10.1111/jofi.12154/abstract
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932316
11. https://www.institutionalinvestor.com/article/b1c7h5vy65jhr3/Private-Market-Investors-Say-Fees-Matter-Most-in-Manager-Selection
12. https://files.pitchbook.com/website/files/pdf/PitchBook_2018_Annual_Institutional_Investors_Survey.pdf
13. https://static1.squarespace.com/static/55db7b87e4b0dca22fba2438/t/5c8b09008165f55d4bec1a36/1552615684090/2018+Yale+Endowment.pdf
14. Erik Stafford, Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting, 2015 https://www.hbs.edu/faculty/Pages/item.aspx?num=50433
BUY and BUYN are examples of recently created ETFs designed to mimic private equity performance. Whether they can have success in attracting assets and meeting their objectives is yet to be seen.
15. See https://www.institutionalinvestor.com/article/b1c640md2kgp81/This-San-Francisco-Investor-Wants-to-Revolutionize-Private-Equity-Is-He-Crazy
16. Julie Segal, Can Steve Schwarzman Be Replicated? Private equity “beta” can be replicated by quants for a fraction of the costs. But will investors sign on? August 27, 2019 https://www.institutionalinvestor.com/article/b1gx3gzky9jlw0/Can-Steve-Schwarzman-Be-Replicated
17. https://www.bloomberg.com/news/features/2019-10-03/how-private-equity-works-and-took-over-everything
18. For instance, see Alicia McElhaney, How Private Equity Firms Should Disclose Fees, Loans to Investors, June 27, 2019 https://www.institutionalinvestor.com/article/b1g0r1cql071r7/How-Private-Equity-Firms-Should-Disclose-Fees-Loans-to-Investors
19. https://blogs.cfainstitute.org/investor/2019/06/25/private-equity-access-should-we-beware/
20. For instance, see Arleen Jacobius, CalPERS not alone on private equity shift, Pensions & Investments, April 1, 2019 https://www.pionline.com/article/20190401/PRINT/190409988/calpers-not-alone-on-private-equity-shift
21. Dawn Lim, Indexing Giant Vanguard Examining a Push Into Private Equity, Wall Street Journal, June 23, 2019 https://www.wsj.com/articles/indexing-giant-vanguard-examining-a-push-into-private-equity-11561287602
22. Understanding Alternative Investments: Private Equity Performance Measurement and Its Role in a Portfolio https://personal.vanguard.com/pdf/flgpe.pdf
23. https://www.institutionalinvestor.com/article/b1bh5sbz82rzbx/Have-Institutional-Investors-Spoiled-the-Hedge-Fund-Party
24. For instance see https://www.institutionalinvestor.com/article/b18dwjvpw2n9v9/the-rich-list
25. A summary of 18 Hedge Fund strategies with returns for the decade ending 2018 can be found at https://www.worth.com/the-hedge-fund-strategies-that-actually-work/
26. Ekaterini Panopoulou and Nikolaos Voukelatos, "The Role of Strategy Distinctiveness in Hedge Fund Performance," October 2017 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3060993
Amy Whyte, Why Unconventional Hedge Funds May Not Outperform, After All, Institutional Investors, November 06, 2017 https://www.institutionalinvestor.com/article/b15hpwtbxnsln0/why-unconventional-hedge-funds-may-not-outperform-after-all
27. Roger Ibbotson, Peng Chen, and Kevin Zhu, The ABCs of Hedge Funds: Alphas, Betas, and Costs, Financial Analysts Journal, January/February 2011 https://www.cfapubs.org/doi/pdf/10.2469/faj.v67.n1.6
28. Rafaela Lindeberg, A $90 Billion Swedish Investor Says He Won't Touch Hedge Funds, April 29, 2019 https://www.bloomberg.com/news/articles/2019-04-30/a-90-billion-swedish-investor-says-he-won-t-touch-hedge-funds
29. Stephen J. Brown, "Why Hedge Funds?" Financial Analysts Journal Nov/Dec 2016 https://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n6.6
30. Barry Ritholtz, “How you, the amateur investor, can beat the pros,” Washington Post, November 6, 2015 https://www.washingtonpost.com/business/get-there/how-you-the-amateur-investor-can-beat-the-pros/2015/11/06/2c1daed0-8430-11e5-8ba6-cec48b74b2a7_story.html
https://ritholtz.com/2015/11/the-amateur-investing-advantage/
31. Mark Hulbert, Here’s how to push against the ‘I want to buy hedge funds’ argument, November 6, 2017 https://www.marketwatch.com/story/heres-how-to-push-against-the-i-want-to-buy-hedge-funds-argument-2017-11-06
32. https://www.morningstar.com/articles/883298/will-hedge-funds-ever-recover.html
33. https://www.economist.com/news/finance-and-economics/21735038-most-hedge-fund-managers-are-not-good-enough-average-offset-their-high
34. John Griffin and Jin Xu, How Smart are the Smart Guys? A Unique View from Hedge Fund Stock Holdings The Review of Financial Studies (July 2009) https://academic.oup.com/rfs/article-abstract/22/7/2531/1601313
35. Bing Liang and Hyuna Park, Predicting Hedge Fund Failure: A Comparison of Risk Measures, The Journal of Financial and Quantitative Analysis, February 2010 https://www.jstor.org/stable/27801479?seq=1#page_scan_tab_contents
36. https://www.marketwatch.com/story/hedge-funds-closed-down-last-year-at-a-pace-unseen-since-2008-2017-03-17
37. https://www.marketwatch.com/story/hedge-fund-assets-hit-record-even-as-fund-closures-continue-to-outpace-launches-2017-10-19
38. https://www.hedgefundresearch.com/news/hedge-fund-liquidations-fall-to-lowest-level-since-2007
https://www.institutionalinvestor.com/article/b1b1bd9jlh7jxp/Hedge-Fund-Closures-Plummet-to-Pre-Crisis-Level
39. https://www.axios.com/the-hedge-fund-moment-is-over-d9418958-2ac2-488f-b29b-0a5cba4d2c95.html
40. Griefeld, Katherine and Ryan, Charlotte, Why No One Wants to Invest in Currency Hedge Funds Anymore, Bloomberg.com, April 15, 2019 https://www.bloomberg.com/news/articles/2019-04-16/why-no-one-wants-to-invest-in-currency-hedge-funds-anymore
41. https://www.bloomberg.com/news/articles/2019-01-08/hedge-funds-lost-almost-6-last-year-as-markets-roiled-managers , although Bridgewater, the largest hedge fund had a good year – see https://www.cnbc.com/2019/01/04/hedge-fund-returns-in-2018-the-good-the-bad-the-ugly.html 42. https://www.ai-cio.com/news/lackluster-hedge-funds-q1-cant-stop-industry-growth/
43. Nir Kaissar, If Hedge Funds Are Lagging, Why Do They Have So Much Money? Washington Post, February 19, 2019 https://www.washingtonpost.com/business/if-hedge-funds-are-lagging-why-do-they-have-so-much-money/2019/02/19/6d29cfca-3446-11e9-8375-e3dcf6b68558_story.html
44. Michael Livian, How To Build A Poor Man's Hedge Fund (10/18/10) https://www.cnbc.com/id/39342454/
45. Leanne ten Brinke, Aimee Kish, Dacher Keltner, Hedge Fund Managers With Psychopathic Tendencies Make for Worse Investors, October 19, 2017 http://journals.sagepub.com/doi/abs/10.1177/0146167217733080
46. https://www.fnlondon.com/articles/hedge-funds-run-by-women-outperform-by-20-20180116
47. Yan Lu, Sandra Mortal, and Sugata Ray, “Hedge Fund Hold’em” http://finance.darden.virginia.edu/wp-content/uploads/2019/02/Hedge-Fund-Holdem-I.pdf
48. Stephen Brown, Yan Lu, Sugata Ray, Melvyn Teo, “Sensation Seeking and Hedge Funds”, Journal of Finance https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2882983
https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12723
49. Lin Sun and Melvyn Teo, Public hedge funds, Journal of Financial Economics, January 2019 https://doi.org/10.1016/j.jfineco.2018.09.004
50. Nir Kaissar, If Hedge Funds Are Lagging, Why Do They Have So Much Money? Washington Post, February 19, 2019 https://www.washingtonpost.com/business/if-hedge-funds-are-lagging-why-do-they-have-so-much-money/2019/02/19/6d29cfca-3446-11e9-8375-e3dcf6b68558_story.html
51. https://www.etf.com/sections/etf-strategist-corner/factor-etfs-diversification-or-diworsification
52. https://funds.aqr.com/
53. According to CNBC (citing Cambridge Assoc.) over the past ten years, the returns on private equity were 14.3% versus 13.1% for the S&P 500 https://www.cnbc.com/2019/07/05/investor-karen-firestone-how-vanguard-could-potentially-shake-up-this-closed-market.html
54. For instance see "Private equity: A potential source for enhanced returns," JP Morgan, August 2016 https://am.jpmorgan.com/blobcontent/1383370279325/83456/II_PE_Potential%20Source%20for%20Enhanced%20Returns_r4.pdf
55. Alicia McElhaneym, "Here Are the Private Equity Funds Winning the Secondary Market," Institutional Investor, January 18, 2019 https://www.institutionalinvestor.com/article/b1crdd8r4j687y/Here-Are-the-Private-Equity-Funds-Winning-the-Secondary-Market
56. http://www.pionline.com/article/20180625/PRINT/180629927/reit-managers-getting-gobbled-up-again
57. https://www.blackstone.com/media/press-releases/article/blackstone-announces-20_5-billion-final-close-for-latest-global-real-estate-fund See also Peter Grant, Blackstone Aims to Throw Weight Around With a Record Real Estate Fund,” Wall Street Journal, January 15, 2019 https://www.wsj.com/articles/blackstone-aims-to-throw-weight-around-with-a-record-real-estate-fund-11547560801 and https://www.bloomberg.com/news/articles/2019-02-13/private-equity-likes-the-look-of-blackstone-s-real-estate-model
58. Christine Idzelis at Institutional Investor was titled "Everything About Private Equity Reeks of Bubble. Party On!" July 22, 2018 https://www.institutionalinvestor.com/article/b195s0y2vfll69/Everything-About-Private-Equity-Reeks-of-Bubble-Party-On
59. https://www.preqin.com/insights/blogs/alternatives-in-2019-private-capital-dry-powder-reaches-2tn/25289
Private equity races to spend record $2.5tn cash pile, June 26, 2019 https://www.ft.com/content/2f777656-9854-11e9-9573-ee5cbb98ed36 60. https://www.forbes.com/sites/lcarrel/2019/09/13/hedge-fund-manager-leon-cooperman-call-private-equity-a-scam/#6425e9841ec6
61. Charles Cao, Yong Chen, William Goetzmann, and Bing Ling, Hedge Funds and Stock Price Formation, Financial Analysts Journal, Third Quarter 2018
62. Jean-Pierre Aubry, Anqi Chen, and Alicia Munnell, A First Look at Alternative Investments and Public Pensions. Center for Retirement Research at Boston College. July 2017 http://crr.bc.edu/wp-content/uploads/2017/06/slp_55.pdf
63. John Rekenthaler, Judgment Day, May 16, 2019 https://www.morningstar.com/articles/929988/judgment-day.html



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Table of Contents and Launch Site

Last update 12/31/2019. Copyright © 2019 Gary Karz. All rights reserved.
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