For a fund like this, more volatility = more opportunities to make money. Doing 25% when the benchmark does 15% is less impressive than when it does 10, 5, or is down over the same period.
(Not GP.)
(Not GP.)
This fund is up basically entirely on the strength of TSLA being up 700%. OP is basically considering two possibilities:
1. TSLA stock is a driftless geometric Brownian motion with a volatility matching that of the general market, and happened to get a 700% return purely by chance, or
2. The fund manager, due to his exceptional skill, knew that TSLA was going to be up 700%.
The OP is rejecting option (1) and then concluding that option (2) must be the case.
Of course in reality neither is the case and the OP's calculation is totally irrelevant.
So the more volatile (within a period) the more money making moves there.
If this is the benchmark:
_ _/\ /
/ \_/ \/
(Even with only long bets, they could make $5.)
My point was that to "test" if a concentrated stock-picking fund can get that result by luck you don't look at how often the market with such and such return and volatility gets that performance or how often randomly trading the market would you get this performance.
You look at how rare is it that a concentrated portfolio of random stocks has a very good performance. The answer is "not that much".