[the_drunkard]

This bet is disengeneous as *most hedge funds operate under risk neutral long /short strategies that seek to generate returns irrespective of market conditions.

Want to know what a good year for a PM at a major platform hedge fund (P72, BAM, Millenium, etc... ) looks like? Probably in the range of 8 -12% returns, which translates to 7-figure pay days.

A more in depth explanation below from the article is linked below.

> Having the flexibility to invest both long and short, hedge funds do not set out to beat the market. Rather, they seek to generate positive returns over time regardless of the market environment. They think very differently than do traditional “relative-return” investors, whose primary goal is to beat the market, even when that only means losing less than the market when it falls. For hedge funds, success can mean outperforming the market in lean times, while underperforming in the best of times. Through a cycle, nevertheless, top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well. We believe such results will continue.

[jameshart]

Every year there are hedge fund managers that outperform the market. The trick is knowing at the beginning of the year which manager that’s going to be.

Absent that crystal ball, a portfolio of hedge funds is a strictly more expensive way of investing than an index fund.

[internetslave]

This is false. If you work in the industry there are consistent winners.

[JKCalhoun]

And, as I understand from Bogle's (admittedly dated) book, when that happens everyone rushes into the fund and it begins to underperform due to its increased weight/influence (see Peter Lynch's Magellan Fund).

[internetslave]

No. Some portfolio managers are just good. This whole no one can beat the market is non sense.

[kortilla]

So is your argument that we just haven’t been through a cycle or else the hedge funds would have come out ahead? If they didn’t come out ahead after all of the turmoil, they are (on average) worse than an index fund.

[the_drunkard]

> So is your argument that we just haven’t been through a cycle or else the hedge funds would have come out ahead? If they didn’t come out ahead after all of the turmoil, they are (on average) worse than an index fund.

No. The proposition of most platform hedge funds is not to beat the market. It's to generate returns in any type of environment on a risk neutral basis.

So if you invest in a hedge fund, do not expect market returns. Expect range-bound returns in any type of market environment.

Hedge funds are risk management vehicles for institutional money.

[tinus_hn]

That hedge fund manager that took the bet surely mustn’t know what he is talking about!

[the_drunkard]

Please read the article. It's explained clearly under Protege Partners, LLC's Argument.

> Mr. Buffett is correct in his assertion that, on average, active management in a narrowly defined universe like the S&P; 500 is destined to underperform market indexes. That is a well-established fact in the context of traditional long-only investment management. But applying the same argument to hedge funds is a bit of an apples-to-oranges comparison.

> Having the flexibility to invest both long and short, hedge funds do not set out to beat the market. Rather, they seek to generate positive returns over time regardless of the market environment. They think very differently than do traditional “relative-return” investors, whose primary goal is to beat the market, even when that only means losing less than the market when it falls. For hedge funds, success can mean outperforming the market in lean times, while underperforming in the best of times. Through a cycle, nevertheless, top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well. We believe such results will continue.