This article comes from the WeChat public account:New Global Asset Allocation (ID: SmartGAA) author: Vatican Vatican, editor: Hui Hui, the original title of” survivors survive: the scenery behind the hedge funds “, the title figure comes from: vision China
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In the eyes of people, hedge fund managers are a group of mysterious people who can call the wind and rain in the financial market like a “bloodthirsty vulture”. If we look at the income of this group of elites, we can directly appreciate the distance between ordinary people and them. In the 2019 billionaire index hedge fund wealth rankings released by Bloomberg, the top 8 incomes are all over $1 billion , The top income of the list reached 1.8 billion US dollars.
However, the assets of this group of elites have also been greatly affected by the recent epidemic.According to Bloomberg data, only 13% of global hedge funds achieved profit in March and April, the top Hedge Fund Bridgewater’s flagship hedge fund fell by about 20% at the end of the first quarter. Many large-scale quantitative hedge funds also experienced unprecedented huge losses. Can’t help but think of Soros’s saying, “I just survived survivor”. With the development of passive investment, there are a lot of data showing that the assets of hedge funds have been continuously flowing out in recent years. Are you the winner in the brutal capital market? Does the strategy of crossing bulls and bears exist?
Hedge funds in the United States have a long history. In contrast, Asia started 40 years later, and China is still in its infancy. Many people still have their images of it when Soros attacked the British pound in the 1990s. Mysterious and fierce, I think it is a murderer who disrupts the market. This article will talk about the development and current status of hedge funds, and unveil its mystery.
Jones creates the first hedge fund
Founder of the hedge fundAlfred Winslow Jones (Alfred Winslow Jones, 1900), have not attended business school, did not have a PhD in econometric finance, and have not been enlightened in Morgan Stanley and Goldman Sachs. On the contrary, he is a sociologist concerned about the international situation, a former US diplomat in Germany. The original intention of setting up a hedge fund was to make money with partners and have more freedom to participate in social research.
Jones’s opportunity to turn to the financial industry In March 1949, he published an article in “Fortune” magazine “The Guess the Hipster”, using his sociological knowledge to “strong” traditional stereotypes. The method of market trends in the stock market” criticized, including an example: “In the summer of 1946, the Dow Jones Industrial Index fell from 205 points to 163 points in 5 weeks, causing little fear in the market. But in the stock marketBefore the fall, the company’s operating conditions were excellent, and even when it fell, it insisted on outstanding results…”This also allowed Jones to discover opportunities to make money.
Jones believes that due to changes in investors’ psychological expectations, the market often makes errors in the judgment of stock prices. The money may be just a string of numbers, but it can show greed, horror and jealousy in the market, which is public psychology. Reflect, and there are investment opportunities in this volatility. When the article “Guess” was published, Jones had resigned from Fortune magazine and established the world’s first hedge fund: In 1949, the 48-year-old Jones raised 100,000 US dollars on Broad Street. The first hedge fund was issued in the shabby room, and a new investment structure was born and continues to this day.
Before hedge funds, the general practice of most professional investors is to buy the stock market before the stock market is about to rise, and to liquidate the stock market and hold cash before the stock market is about to fall. Jones has improved this: When market trends suggest that a bull market is coming, add leverage to buy the stock market; and when a bear market comes, not only to realize the stock, but also to reduce the risk by shorting, that is, based on the expectation of stock price decline , Borrow stocks from other investors and sell them, and then buy them at a low price, so you can make a profit through hedging.
Leverage and short selling were once considered to be one of the reasons for the 1929 stock market crash. But compared to before, Jones emphasized the control of risk. Even if there is no trend to indicate that the market is going to fall, it also needs to be short-term as a preventive measure, “hedging”, and managing and reducing portfolio system risk in response to changes in the financial market. In fact, after the crisis of 1929, the financial industry was not good. Not many undergraduates and graduates chose finance. Harvard University even arranged investment classes at noon to make room for other more popular classes. Many investment managers and investors The management companies are all about capital preservation. The innovation of Jones lies in: through speculative means to achieve the purpose of hedging, adhere to disciplined hedging standards.
In 1952, just three years after Jones established the fund, a short article entitled “Portfolio Selection” was announced, which laid the foundation for a modern portfolio of investment theories. Author Harry Markwitz puts forward two concepts: first, the art of investment is not only to maximize returns, but to maximize risk-adjusted returns; second, the risks that investors bear are not only determined by what he holds Stocks also depend on the correlation between stocks. And Jones has already followed this concept in practice: reduce risk through multiple decentralized investments.
In the 1961 prospectus for external partners, Jones explained his philosophy with an example. He assumes that there are two investors, each giving $100,000, and then assumes that they are the sameExpert in stock selection and optimistic about the market:
The first investor invested in the traditional fund method, using $80,000 to buy what he thinks is the best stock market, and the remaining $20,000 to buy risk-free bonds. The second investor, according to Jones’s method, first borrowed 100,000 yuan, the total amount reached 200,000 US dollars, used 130,000 to buy his bullish stock market, and short-selling the bad stock market worth 70,000 US dollars. In doing so, the second investor has the advantage of diversifying the portfolio when he is long: with 130,000 USD, he can buy a wider range of stocks; this also gives him a lower holding risk: a value of 70,000 The short USD dollar hedges the long USD 70,000, so his “net hold” is USD 60,000, while the first investor is USD 80,000. As a result, hedge fund investors have lower stock selection risk and lower market risk. Of course, the premise is that you can choose the standard and understand its volatility, otherwise the leverage effect will greatly expand the risk.
For example, if a hedge fund investment believes that a steel company has better cost, management, and talent advantages than other steel companies, then the hedge fund sells the steel industry by buying the steel company. To make a portfolio. Traditional funds still need to be judged by observing the development of the steel industry and the position of the entire market.
In this example, hedge funds do not need to control the development prospects of the entire steel industry, the overall operation of the steel industry, or even the current bear market or bull market. The only thing fund companies need to care about is That is, the company they choose is better than other steel companies.
An innovation that Jones has also made is to divide fund managers based on performance. Later, the high performance of hedge funds naturally created high income for managers. Prior to this, Wall Street managers’ income mostly came from commissions for client transactions, regardless of whether these transaction symbols were not in the client’s interest. And Jones broke this form and made everyone a stock picker. The characteristics of short selling, margin trading, strategic trading, and collection of performance fees have gradually been fixed and become the standard of the hedge fund industry.
American stocks at the time were like A-shares now. Most people speculate on their own and have more retail investors. This also gives Jones the advantage of hedging arbitrage in volatility. The Jones Partnership Fund achieved 670% of its value between 1955 and 1965 The cumulative rate of return, while the second-ranked fund “only” returns 350%. In the 50s and 60s of the 20th century, almost no one understood Jones’ investment practices, and Jones mysteriously controlled the partners within a certain number. However, when this skill was understood and imitated by opponents, Jones began to gradually lose his advantage.
In the early 1960s, US stocks ushered in a bull market, and many managers increased their leverage blindly, even aggressively unilaterally. In the late 1960s, due to the oil crisis and the Vietnam War, the economic situation in the United States deteriorated. Hedge funds experienced a period of low tide. Those funds that did not focus on risk suffered numerous losses, and Jones’ assets were managed from 100 million in the 1960s. The multi-dollar contracted to US$35 million in 1973.
Tiger Fund: The Age of Macro Hedge Funds
After World War II, the international situation changed, the Bretton Woods system was shaken, and international currency volatility increased. On August 15, 1971, Nixon announced that the United States would no longer abide by the promise of using foreign dollars held in exchange for gold (Previously, the United States sold gold at a fixed price of $35 for 1 ounce of gold to countries that needed it). At the same time, “Father of Financial Derivatives” Melamed seized the opportunity to launch a number of financial derivative instruments, including Treasury futures, Eurodollar futures, etc., and in 1982, launched stock index futures. This greatly increased the long and short instruments in the hedging strategy, hedge funds began to recover, and opened the era of global macro hedging.
In 1980, Robertson founded the legendary global macro hedge fund-Tiger Fund (TigerFund), in 1985, he correctly predicted At the end of the four-year trend of appreciation of the US dollar against European currencies and the Japanese yen, we decided to short the US dollar and bought a large amount of call options for the Japanese yen and the European currency. This kind of macro-economic principles analyzes the economic and political aspects of different countries. The practice of hedging the environment has allowed Tiger Fund to make a lot of money. From 1980 to 1986, the average return was 43%, and the cumulative return was more than 850%.
Soros and hisQuantum Fund is also a typical representative of macro-strategic funds. Attacking the British pound, capturing the Thai baht, striking Hong Kong, and sweeping Southeast Asia are his masterpieces. In the early 1990s, after the reunification of Germany, the central bank sharply increased bank interest rates, and the German mark appreciated significantly. At the same time, the British economy is very sluggish, but in order to cooperate with the linked exchange rate in the European Community, the British government has to artificially raise the exchange rate to maintain the exchange rate of the pound to the mark, which in turn leads to the risk of further deterioration of the British economy. In September 1992, Soros spotted this opportunity, vigorously shorted the pound, and bought the German mark. Eventually, the British government’s foreign exchange reserves had insufficient bullets, and it had to announce that the pound had withdrawn from the European exchange rate system and began to float freely. Within a month, the British pound fell by 20%, and Soros and Quantum Fund profited more than one billion dollars from it, becoming famous in one battle.
Hedge funds are respected for their profitability, but they are also blamed for their destabilizing effects on world financial markets. However, the predictions of the big brothers are not accurate, and overconfidence often makes them pursue risks. The capital market is a place full of humanity and variables.
The huge success achieved over the years has convinced Robertson to invest in his own investment philosophy, focusing on investing in “value stocks” in the traditional economic sector. He did not expect to lose money in the whirlwind of technology stocks; he later mistakenly bet on the depreciation of the yen against the dollar. With a loss of more than US$2 billion, investors began to redeem funds. In March 2000, the Tiger Fund closed. Quantum Fund also lost $2 billion during the Russian debt crisis in 1998, and then lost $3 billion in the Internet bubble.
People realize that when talented investors also make mistakes and mistakes, it is difficult to win long-term in complex markets based on human qualitative analysis alone. Human behavior deviations often lead us to make irrational investment decisions, regardless of whether you are an ordinary person or a genius (related articles “Centennial Stock Exchange”)
The size and composition of US ETFs since 1996 (in billions of dollars)
Source: ICI, Shen Wanhongyuan Research
Look at the situation in China. Funds with real hedging significance in the A-share market have only appeared since the introduction of stock index futures in 2010, and their history is still very short. Quantitative trading has also entered the horizon of Chinese investors at this time. On February 7, 2014, after the China Securities Regulatory Commission opened the private equity fund registration and filing system, Chinese hedge fund companies could be established by filing with the fund industry association to issue their own hedge fund products.
Currently, fund companies in Mainland China that can be called hedge funds are estimated to be about 70Xi, less speculation, adhere to a reliable investment concept and a systematic investment framework, investors can overcome their inherent defects and win in the long-distance investment.
References:
1. “Father of Hedge Funds-Alfred Winslow Jones Investment Story”, Wealth Management;
2. “The Great Financial Defeat—A Long-Term Capital Management Company’s Rise and Fall”, Huixue;
3. “What is the risk of this round of US financial investment institutions?” Hedge Fund “Leverage” Study, Zhongtai Securities;
4. “Striving for stability: the past and present of hedge funds”, Huatai Securities;
5. “Decrypt the first 10 years of development of Chinese-style hedge funds”: From germination to blossoming everywhere, Huiyu Global Family Think Tank;
6. “16 top hedge fund tycoons: talk about the next 10 years of quantitative investment! 》, Quantification and machine learning;
7. “What is a quantitative hedge fund”, Huaer Street Reference;
8. “The History and Investment Revelation of the Top Four Hedge Funds in the World,” read Dudu Finance.