Put Into Perspective – Ray Dalio On Why He’s “A Professional Mistake Maker”VW Staff
Ray Dalio On Why He's “A Professional Mistake Maker” by Skenderbeg Asset Management
“Like champagne, bull markets remove inhibitions.” — James Grant
Put Into Perspective - Hedge Funds
Watch Out Asset Managers, Hedge Funds Will Top $5 Trillion By Taking Your Clients
In just five years, the hedge fund industry will double in size to a staggering $5.1 trillion in assets. That's a huge jump considering hedge fund performance has been anything but impressive since 2011. Hedge funds trailed the S&P 500 in the first four months of 2012 returning 5% versus a 11.2% gain for the S&P 500.
Despite the poor performance of late a new report from Citi shows that the hedge fund industry will jump from its current $2.1 trillion to $5.1 trillion by 2016. By comparison, the US mutual fund industry has $13 trillion in assets; and that's an industry open to retail investors rather than just accredited investors hedge funds are limited to.
But what's more interesting than the projected growth of the hedge fund industry is how Citi predicts it will get there–hedge funds will look and act more like traditional asset managers than they ever have in their path to $5 trillion in assets.
The Hedge Fund Truth - Why We Need Hedge Fund Therapy
This video looks at some of the truths and fictions around the hedge fund industry, focusing around recent bad press about returns, fees and a shortage of talent. It asks if the entire industry should be tarred with the same big brush or if there is nuance that investors and industry watchers may not have considered.
Enough about the fees already!
Once again the Oracle of Omaha and his sidekick have unleashed a barrage on the hedge fund industry and the "outrageous" fees managers charge. At their annual Woodstock of Capitalism the pair astutely pointed out that market volatility, combined with political uncertainty, has hurt performance at many funds. Despite this, what really seems to be most troubling to them is the fees hedge fund managers charge. While Mr. Buffett and Mr. Munger have a point (the fees ARE high), they are missing the fundamental issue – the free market. The market, you see, is what dictates the fees. When the market decides that hedge fund fees are too high, well, guess what: The fees will come down. It seems that both Mr. Munger and Mr. Buffett have forgotten this basic tenet of capitalism.
Perception is reality when it comes to hedge funds. Investors believe that they're getting a better product with a hedge fund than with a mutual fund and they're willing to pay for it. It's no different than picking The Palm over Outback – both are steakhouses, both serve meat and potatoes, but one is clearly superior and customers are willing to pony up more for its filet mignon.
When the market decides that hedge fund fees are too high, the fees will come down. Period, end of story. Right now, though, it seems that the only ones complaining about fees are those who can't charge them.
Clinton Son-in-law's Firm Is Said To Close Greece Hedge Fund
It was a hedge fund portfolio pitched by Hillary Clinton's son-in-law, Marc Mezvinsky, as an opportunity to bet on a Greek economic revival. Now, two years later, the Greece-focused fund is shutting down, after losing nearly 90 percent of its value, according to two investors with direct knowledge of the matter who spoke on the condition of anonymity.
Investors were told last month that the fund would close. The fund, Eaglevale Hellenic Opportunity, had raised $25 million from investors to buy Greek bank stocks and government debt. Eaglevale Partners, a Manhattan hedge fund firm founded by Mr. Mezvinsky and two former Goldman Sachs colleagues, raised money for the Hellenic fund at a time when some on Wall Street had hopes for a revival in the Greek econ-omy. For a time, Mr. Mezvinsky appeared at hedge fund conferences promoting the Greece investment thesis.
The Evolution Of Hedge Funds
Cliff Asness, AQR Capital Management's chief investment officer, discusses the evolution of hedge funds with Bloomberg's Erik Schatzker at the Milken Institute Global Conference.
Rich Hedge Fund Managers Are Still Rich
If you have billions of dollars at the beginning of the year, and you invest your money, and the market goes up, then at the end of the year you'll have made hundreds of millions of dollars. This is very obvious, but here is your annual reminder of it, dressed up as overpaid hedge fund managers:
The top 25 hedge fund managers reaped $11.62 billion in compensation in 2014, according to an annual ranking by Institutional Investor's Alpha magazine.
This is not especially true, though, for ordinary uses of the word "compensation." Here is how Institutional Investor describes its methodology:
To estimate a hedge fund manager's total earnings for one year, we draw from two components. As always, Institutional Investor's Alpha counts the individual's share of a firm's management and performance fees. The management fees often add up to a sizable sum at the largest firms, many of which charge between 2 and 5 percent. We also count the gains on the individual's own capital in their funds, which can be considerable. If a manager still has not reached his high-water mark, we count just management fees and the gains on his personal capital for the year.
Emphasis added. Most of this "compensation" is not "compensation," in the sense of amounts that pension funds paid these guys to manage their money. Most of it is just return on capital: The managers had money in their funds, and the funds went up, so the managers had more money at the end of the year than at the beginning. They invested a lot of money reasonably successfully, so now they have more money.
Billionaire Hedge Fund Manager Ray Dalio On Why He's "A Professional Mistake Maker"
Ray Dalio runs the world's biggest hedge fund firm and has a net worth that Forbes estimates at $15.6 billion. But he calls himself "a profes-sional mistake maker." That attitude may be the key to his immense success.
Ray Dalio shared his views about mistakes, learning, success, philanthropy and more in a candid discussion with Harvard University psychology professor Robert Kegan at the Milken Institute Global Conference in Beverly Hills. Kegan spent a week at Dalio's hedge fund firm and wrote a chapter about it for his book. In the discussion, titled "Meaningful Work and Relationships Through Radical Truth and Transparency," the conversation centered on the way Ray Dalio has built the culture, operating process and employee development at Bridgewater Associates, his hedge fund firm, with the focus on airing disagreements as a way to reach investment decisions. "Can we be straight with each other? Can we work it through? That's the essence of it," Dalio said, describing his firm's operating philosophy. "Would you like to know your weak-nesses? Might you find it painful to find them? That's what it's about," he added.
Ray Dalio started Bridgewater Associates in a two-bedroom apartment in 1975. Today it employs 1,500 people and manages about $150 billion in assets. Dalio ranked 9th on Forbes 2016 list of Highest Earning Hedge Fund Managers & Traders, earning an estimated $500 million in 2015. His funds delivered a mixed performance last year.
Some tidbits from the conversation:
Ray Dalio has written down his ideas in something called "The Principles," available for download on the Bridgewater website. Kegan noted in the discussion that it has been downloaded 2 million times.
Disagreement is a routine matter at Bridgewater. "In order to be successful in markets … you need to have a view that's different from others … but there's a high probability that you're wrong, so you need to thrash it out." Thrashing out differences of opinion can be painful, Dalio admitted. One of his principles is "Pain Plus Reflection Equals Progress." Elaborating, Dalio said: "Pain probably indicates something is wrong. I found my best learnings came from painful experiences." That's because he is always trying to learn from them.
Ray Dalio said he's made plenty of mistakes. "I'm a professional mistake maker. I'm lucky two-thirds of my trades are right." Asked what his biggest mistake was, he recalled being on Wall Street Week in 1982 and calling the bottom of the stock market. Mexico did default on its debt in 1982 and then the Fed eased rates, Dalio recalled. He turned out to be wrong about the stock market's reaction to so much debt being ex-tended to Latin American countries.
"I learned that every time I made a mistake, I would write it down. What I was finding is … that instead of just making a decision, thinking about what are the criteria for making the decision. That helped me a lot. That helped others a lot. When the next one came along we had an agreed upon way of dealing with it."
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