Hedge Funds Confirm the Good Old Truth

18 sty 2022

According to classical economic theory in the field of financial markets, it is not possible to “beat the markets” (to consistently show higher returns than the market as a whole): “You can’t beat the market.”

At one time (2007), Warren Buffett tested the theory in practice, making a million-dollar bet that hedge funds over a period of 10 years would not be able to show returns higher than the S&P-500 index. In 2017, the bet ended with the victory of Warren Buffett. For nearly 10 years, the S&P 500 has returned 85.4% versus 22% for five hedge funds.

And despite all this talk about a new financial reality, about fundamentally different conditions for the functioning of markets, in fact, everything is the same, everything is the same, as shown by the results of hedge funds in 2021.

So, in 2021, a group of the top 20 hedge funds made a profit of $65.4 billion after paying fees. At the same time, the TCI Fund Management hedge fund alone earned $9.5 billion for clients in 2021, recording its 13th profitable year in a row, and showed a return of 23.3%.

In general, according to LCH Investments, the 20 largest hedge funds have achieved a return on assets of 10.5%, which is almost 2 times better than the industry average. It would seem that success is what it is. But there is one big “but”: the S&P 500 is up 28.7% in 2021, including dividends.

That is, starting from the first publications of Fame in the 60s of the 20th century, absolutely nothing has changed in this regard.

And finally, a rhetorical question: if the best of the best, operating in billions for decades, how children rejoice at a yield of 10-20% per annum, why do people without education and experience believe that they can “squeeze” hundreds of percent per annum out of the markets?