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Comment by zmk_ | Hacker News Reader

Not only was it possible to lose money, some hedge funds did. Just look at Renaissance's non-insider funds.

This is where people fundamentally misunderstand what hedge funds do. It's been nearly impossible to lose money as a long only. But hedge funds, which have massively underperformed as an industry have largely done so because the Fed has forced everyone to be maxi long risk assets. There is no alternative. And fundamentally, this isn't what hedge funds do.

I've often heard people say hedgies are just levered beta. Well, that's obviously not true as we've seen indices outperform. Some of the best long/short investors have been absolutely wrecked in the post 2008 QE environment (QEternity) because price discovery is meaningless. The Fed is in the driver's seat, and the managers who have killed it had one simple thesis: the Fed has your back, so BTFD. Front running the Fed has been the best and easiest strategy for over a decade now. And it will continue to be so until it isn't...

Can you explain what you mean here?

> maxi long risk assets

I think you mostly mean "own assets", but would like to understand this phrase precisely.

Not the GP, but I think they mean that there has been no point in hedging (hence "hedge fund") risk in the world of Fed-driven asset prices. If the Fed has your back to BTFD every time (and just look at the S&P 500 since the Covid crash -- a 30% loss was made up for in just six months), why bother trying to seek alpha to beat the market by trying to buy under-appreciated assets and sell over-appreciated ones? Just buy everything. And if you still want alpha, you just apply leverage. This last part leads to big volatility whenever there is a trigger.

Alpha should be risk adjusted (a la Sharpe/Sortino), but broadly your answer is correct. Current Fed policies punish those who don’t take risk, by design. Hedge funds (in theory - ahem) are structured to maximize risk adjusted profits. But if there’s no risk, because the Fed has made it so, then there is nothing for hedge funds to do but accept the new casino world for what it is: play along and hope that the Fed can control whatever comes our way. It’s a fools errand to hedge...until it isn’t.

Maxi long = maximum ownership that a relevant risk grid would allow

Risk assets = anything but the dollar or bonds

Basically buy assets which (they believe) stimulate the economy more by either lowering financing costs (“the hunt for yield”) or through wealth effects (“my portfolio is up 50%, I’ll spend/consume more now”)

Yea I remember reading about this in another thread: https://news.ycombinator.com/item?id=25953890

> Ray Dalio’s Bridgewater Associates and Jim Simon’s Renaissance Technologies ... each suffered negative double-digit returns in their main funds in 2020. Similarly, some of the industry’s most highly regarded names such as AQR, Two Sigma, and Dimensional Fund Advisors all suffered massive investor redemptions in the face of substantial underperformance in 2020.

RenTech finished the year up over 70% in Medallion, however.

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