The Keys To Improving Hedge Fund Performance

Published on
March 13th, 2019
35 minutes

The Keys To Improving Hedge Fund Performance

The Exchange ·
Featuring Raphael Douady, Michael Rulle, and Paul Kovarsky

Published on: March 13th, 2019 • Duration: 35 minutes

Absolute returns for hedge fund returns have been lackluster for several years now. In this conversation, Raphael Douady, Professor of Quantitive Finance at Stony Brook University, and Michael Rulle, founder and CEO of MSR Investments, speak with CFA Institute's Paul Kovarsky about the sources of the disappointing performance, and about the measures that hedge funds can take in order to improve their course. Filmed on February 14, 2019 in New York.


  • RA
    Robert A.
    18 March 2019 @ 22:25
    Excellent Video. want something in your Portfolio to perform well in gradually rising inflation and something in rapidly rising inflation and something in fairly stable inflation and something in periods of deflation—gee, that sounds exactly like Harry Browne’s Permanent Portfolio “all weather” fund: 25% gold, 25% stocks, 25% long dated US T bonds and 25% US Treasury bills—and rebalance annually. Occam’s Razor Boys and Girls.
  • NR
    Nelson R.
    17 March 2019 @ 23:53
    Excellent and candid exchange filled with nuggets for those of us who actually manage money professionally. Please keep bringing industry insider conversations about the craft like this one to RV.
  • KS
    Karen S.
    13 March 2019 @ 12:40
    "i dont believe in bubbles" wtf?
    • VC
      Vince C.
      13 March 2019 @ 13:24
      When a buyer and seller engage in a transaction, it was purchased at a price, at that time. Is that a bubble or market accepted price?
    • CL
      Charl L.
      13 March 2019 @ 20:11
      I ask anyone that says they don't believe in Bubbles to describe bitcoin 2016 to 2018 price action.
    • DS
      David S.
      14 March 2019 @ 03:12
      Vance C. - A willing buyer and seller of 1% of a company's stock in a single day does reflect but does not set the value of the company. If Amazon goes up or down by 10% in one day, did the value of Amazon really go up or down by 10%. Bubbles do exists based on normal willing human behavior. If your mind is open, you might want to read Soros' book The Soros Lectures: At the Central European University or watch the lectures on YouTube. You can watch or read just the sections on his economic theory. What makes the market fun is finding mispriced stocks and buying them or shorting them. Good luck. DLS
    • VC
      Vince C.
      14 March 2019 @ 14:21
      Hi David, I actually agree with you. I agree with Soros. My mind is open and that.’s why I understand the other side of the coin - people that say there are no such things as bubbles. Market value can be described in intrinsic valuation terms. Market value is equally defined by relative value, and/or as the transactional price between a willing buyer and seller, who are at fair arm’s length from each other at a certain date and time.
    • MR
      Michael R.
      14 March 2019 @ 17:11
      Here is an example of the difficulty of defining a bubble. From 10/07 thru 3/09—-almost 18 months—-the total return of the S&P was almost minus 60%. During the next 4 years 3/09-2/13 the S&P was up 135% (meaning back to even from 10/07). Was the 10/07 price a bubble? Or was the 3/09 price a “reverse bubble”? A bubble implies objective reality that can be known in advance. This is very rare. What one can do is look at prices and analyze what else has to be true to justify that price. The only time I ever observed extreme over valuation was at the peak Nasdaq market in 2000. For example, for the price of Cisco to be justified, it’s growth would have had to be so high that it implied it would equal the size of the whole economy (or that GDP growth would double or triple). That did not happen. In 2009, many investors were convinced that real estate markets were still overvalued. But for that to be true, default rates at that time would need to rise by a multiple of 5x. That did not happen—-in fact they declined from there. Like the old cliche about economists forecasting 10 out of the last 3 recessions, the same is true about bubbles.
    • XF
      Xavier F.
      14 March 2019 @ 18:32
      concept of a bubble is always realized in hindsight try timing the bubble
    • VC
      Vince C.
      15 March 2019 @ 17:57
      Great discussion all, both perspectives equally weighted.
  • SH
    Simon H.
    14 March 2019 @ 18:14
    Great work guys. Keep it up!
  • lD
    lance D.
    14 March 2019 @ 09:33
    That ended a bit weird .
  • SG
    Steve G.
    14 March 2019 @ 06:52
    Too bad so many negative reviews. If you run money, its a great discussion on the headwinds you face and reality of performances. Particulary, vol adjustment was a great comment. I think the shortness of time allowed only to hit on subjects. But under those surfaces creep loads of importance. And I think that is what this discussion was about. "here is an idea. A thought. Maybe an example. Now dive under the water and understand it all. Cuz it will caution you"
  • AP
    Alistair P.
    14 March 2019 @ 04:46
    Tedious. Rambling, incoherent and often incomprehensible.
  • PD
    Peter D.
    13 March 2019 @ 23:28
    Great segment. Hedge funds - in a word - are scams. Anyone who beats the market after fees - even regular active managers - is lucky .... and won't do so over time. Bogle did the math on this decades ago. Even Druckenmiller, - and more recently Gross - got chased out. But in a scam economy and and everything bubble ... all kinds of stuff comes out of the cracks.....
    • ET
      Eduard T.
      14 March 2019 @ 01:37
      Most hedge funds don't consistently make money. But some including Renaissance Technology's Medallion, certain DE Shaw funds, and activists like Paul Singer's Elliot management have consistently posted market beating return..excerpt from New Yorker: "Singer’s ventures have been consistently successful, with average annual returns of almost fourteen per cent..."
  • DS
    David S.
    13 March 2019 @ 21:12
    Good introduction. In this case the group discussion was a little too chaotic for me to follow well. I would like to see Professor Douady in a monologue or an interview with a market expert like Mike Green. Mike is excellent at offering market context and leading an interview. Professor Douady showed a great deal of wisdom in what does not work from his mathematical investigations. That alone would be worth the interview. In addition, I think that there is a lot of positive analysis that Professor Douady could add. Thanks. DLS
  • DC
    Dan C.
    13 March 2019 @ 20:11
    I don't know what to do with this information but if I had to choose I'd say the action item is to never buy a hedge fund. It's interesting that they say Hedge Funds, on the whole outperform mutual funds - I'm not sure if that's true but even if it is why would anyone paying attention buy a mutual fund? Do hedge funds, on the whole, beat ETF? I suspect not. Also peculiar is the statement that many outcomes of "AI" are no better than applying a simple linear regression. I agree, but if the point trying to be made is that hedge funds tend to mute risk (losing 25% instead of 50%) why can't I just allocate more in cash and achieve the same result? I've been looking for a good case to buy hedge funds but so far I haven't found it. How do I find a good manager? I still don't know.