[sna1l]

> In 2017, The Wall Street Journal reported on the difficulties faced by the firm. At that point, Voleon had an annualized return since inception of 10.5%, below the S&P 500 index return of 10.7% over the same period. One of the problems encountered was that financial markets were chaotic, and machine learning systems were best applied where patterns were more repeating in nature. In addition, patterns that are found can be easily made redundant after investors notice them and take advantage on them. Gary Smith writes that patterns discovered by the algorithms are often simply coincidences rather than actual correlations.[2][3][7]

> In 2018, Voleon had a return of 14% during a market turndown where the S&P 500 index dropped 6.2%. However, in 2019, its returns dropped to 7%, below the returns of its hedge fund peers of 9.2%. In 2020, Voleon's flagship fund lost 9%.[6][8]

Given their returns, how do they have 7.6 billion AUM?

[giraffe_lady]

They nearly matched the market in a good year, and beat it very well in a bad one. Hard to say for 2019 since the quote switches to comparing them to "hedge fund peers" instead of the broader market.

As someone else is pointing out that's very close to the intended behavior of hedge funds. Entities with money in hedge funds also have money in indexes. They aren't necessarily looking for just "the market, but more" they want uncorrelated behavior to hedge their exposure.

[verteu]

If they're not 100% correlated with S&P500, they still provide value: https://en.wikipedia.org/wiki/Modern_portfolio_theory#Divers...

[infecto]

Not defending this fund or any other hedge and I do not know the defined purpose of this fund but they generally exist to hedge your risks and are not there to beat the S&P500. Thats why they exist for accredited investors and not your regular investor saving for retirement.

[brianmcc]

Yes in the early days, less so now:

https://en.wikipedia.org/wiki/Hedge_fund#Etymology

"Early hedge funds sought to hedge specific investments against general market fluctuations by shorting the market, hence the name.

Nowadays, however, many different investment strategies are used, many of which do not "hedge" risk."

[JumpCrisscross]

> many different investment strategies are used, many of which do not "hedge" risk."

They're still not generally designed to beat the S&P 500, always.

[infecto]

Fair if we want to go down the "hedge" approach. My point still stands, they don't all exist to beat the s&p500.

[JackFr]

Im pretty sure they exist to beat the market.

They are called “hedge funds” because, as opposed to other stock funds they were allowed to take short positions while mutual funds could not, and so they could hedge some of their risk.

[infecto]

Yes but what market? That was my point, nothing to do with why they are named as they are. Sure, many in the 2-20 bubble had this weird existence where they did not really do much but in general its hard to make a statement about their AUM and returns compared to the S&P500 without know what they were trying to achieve.

[ITB]

If a hedge fund returns a bit under SP500 on average but is more predictable and always has a positive return, it will definitely be desirable.

[JackFr]

You can trivially create that with a portfolio split between T-bills and the S&P.

[bluedevil2k]

> always has a positive return

Not possible. Even the greatest mutual fund manager in the history of the world, Warren Buffet, has beat the market only 39 out of 58 years.

[renewiltord]

Well, it's close to possible since Rentec did it for decades.

[phyalow]

Lookup TGS Management, there are many others out there…

[CPLX]

Even if it’s not predictable and is occasionally negative it’s still really valuable if it’s totally uncorrelated.

[miguelazo]

>Given their returns, how do they have 7.6 billion AUM?

Am I missing something? Don't most of these funds under-perform index funds over the long and even medium term? The idea that they wouldn't have customers if this were the case is another Econ 101 fantasy. It's like any pyramid scheme, just with better record-keeping and marketing.

[queuebert]

AUM = deposits + returns. Maybe they had a lot of interest but haven't been able to do much with the money.

[danielmarkbruce]

I don't know the specifics of Voleon, but if they had very low vol many pension funds etc will happily accept a slight underperformance of SP500.