Which Leaders Will Shape the Future of Hedge Funds?

REPLAY VIDEO
Your next video will start in
Pause

Recommended Videos

  • Info

  • Comments

  • VIDEO TEXT

March 26 (Bloomberg) -- Sebastian Mallaby of Council on Foreign and Columbia University’s Fabio Savoldelli discusses the future of hedge funds and what it takes to run a successful fund on Bloomberg Television’s “Market Makers.”

Been wondering.

Hedge funds have taken reputational beating over the past five years, largely because of what i would call an unsophisticated analysis of their performance, relative to the s&p 500. and it's true, it would have done much better in the s&p 500 in the post crisis time frame than you would have investing in the average hedge fund.

And here's what i've been wondering.

New -- you documented in your book the history of one generation to the other, a class of great hedge fund managers emerges and takes the mantle from the previous generation.

Who are those people now?

I guess, guys like seth carmen who has had a fantastic record.

There are people out there who have those technologies.

There are two other people out in long island that continued to do well.

I think the point that people often make is that there will be an alpha to appear, but there is too much competition.

Alpha is not finite.

As you get new technology and you crunch the data, for example, there are new ways you can figure out how to make money and how to predict which companies will do well and which will do better.

Following on that, what are hedge funds not doing?

Where is the next place that they can leverage or take advantage of their leverage, their use of diverse instruments and their long lock up timeframe?

Hedge funds are a strategy where you create freedom for the managers to go off and chased all those opportunities that you are talking about.

And whether it is with the globalization of the markets that you can frame existing markets that did not exist several years ago, or whether it is within our own capital markets, or whether it is the banks that have been forced to withdraw from traditional businesses because of capital regulations and a changing environment around regulation of banks, all of those things mean that hedge funds the opportunity and they can move in with all of the small players.

It's difficult to know what is going on with these guys.

And that is why i think over time it has done well.

Sebastian states that jim simons and his acolytes are running technologies.

In your opinion, are these hedge funds managers as great as soros once was, as standard bode miller -- stan druckenmiller was, or as they proliferate and there is more money to be made in the same trade, is it hard to be great?

The challenges are still good, but the markets do not give you as long in front.

The markets will arbitrage.

Market it's smarter?

The market gets smarter and you have these three guys set up and running very quickly.

The competition is there.

We also see these incredibly talented people coming from places around the world you would not expect.

Israel, stare global health is one of the top managers out there.

They did 31 last year, 14 the year before.

Guys you have never heard of.

Israel is not hotbed of people spinning out of large funds come up and you still get the -- out of large funds, and you still get the independent guy as well as the modern version of the tiger cub.

What exactly makes a successful hedge fund investor manager?

We know that [indiscernible] is it notoriety?

Is the connections?

In this case, experience.

I think what it takes most of all his discipline.

And a lot of work has been done on this.

A genuine ability to think outside the box, not a desire to be seen like everyone else.

You meet the real great, larry robbins in the more recent generation, home in london running the children's investment fund.

These are guys that are independent thinkers.

You need the independent thinker with the expertise to is not worried about the next person thinking he's wrong.

A lot of people would have said, what are you doing?

Are you trying to arbitrage the stuff?

That is impossible.

There are 10,000 textbooks that say cannot be done.

The same thing would have been told to david shaw.

There is tons of proof that tells them that what they do everyday is an impossibility.

Every author i've ever known asks himself, how would i have penned by book if i were to write a new addition?

If you were thinking about "more money than god" right now, what would you add to that book echo -- add to that book?

X it's only been since 2010, so there is not that much because not that much has changed.

If you don't like too big to fail banks, you better like hedge funds.

Interest rates will saturate.

You got to house the risk someplace.

The council on foreign relations just recently updated the changing on banking.

And the thinking in europe is to take speculators, those guys are moving more toward a securitized system.

Because the banks are systemically unappealing.

Sebastian is our guest host for the hour.

This text has been automatically generated. It may not be 100% accurate.

Advertisement

BTV Channel Finder

Channel_finder_loader

ZIP is required for U.S. locations

Bloomberg Television in   change