Investing In Hedge Funds For the Average Joe

Money Tree Investing

Money Tree Investing Podcast

Stockmarket, Valuestocks, Investing, Finance, Passiveincome, Wealth, Business, Personalfinance

4.6 • 658 Ratings

🗓️ 9 August 2024

⏱️ 62 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Bob Elliott discusses how investing in hedge funds can be for everyone! Elliott highlighted the traditional "two-and-twenty" fee structure, common in hedge funds, private equity, and other alternative assets, which can significantly erode investor returns. His firm aims to replicate these strategies, including equity long-short and global macro, using advanced machine learning to infer hedge fund positions from return data, making them accessible at lower fees for the average investor.

Today we discuss...

Bob's focus to bring low-cost indexing to the world of two-and-twenty, similar to the impact of stock and bond indexing.
Hedge fund strategies, despite being expensive, offer good returns with lower volatility and drawdowns compared to stocks.
Various hedge fund strategies include equity long-short, global macro, fixed income, and emerging market strategies.
Real-time performance data helps in understanding and replicating hedge fund strategies.
The current economic cycle is income-driven rather than credit-driven, making it more durable to rising interest rates.
Overvaluation and high expectations suggest that now may not be the best time to invest heavily in stocks.
The similarities between the current period and the 1970s highlight the importance of diversified portfolios.
Factors like de-globalization, geopolitical tensions, and inflationary pressures could influence future economic dynamics.
Volatility in market expectations and the reality of economic conditions contribute to the current buoyant market despite high interest rates.

Today's Panelists:

Kirk Chisholm | Innovative Wealth
Barbara Friedberg | Barbara Friedberg Personal Finance
Phil Weiss | Apprise Wealth Management

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For more information, visit the show notes at https://moneytreepodcast.com/investing-in-hedge-funds-bob-elliot-632

Transcript

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0:00.0	Welcome to the Money Tree Investing Podcast. Stock market, wealth, personal finance, value stocks, invest in your life.
0:10.7	Hello, Smart Money Tree podcast listeners. Welcome to this week's show. My name's Kirk Chisholm and I'll be your host. So today, I'm
0:16.4	joined with Bob Elliott. How you doing today, Bob? Hey, how's it going? Good. Glad to have you in the show.
0:21.0	This would be a fun conversation, given what's going on in the world. So, Bob, maybe you can tell us
0:25.1	a little bit about your background. I've been a systematic macro investor for about 20 years. I was on the
0:31.2	investment committee at Bridgewater Associates, which was the world's largest hedge fund at the time
0:36.3	and, you know, created investment strategies
0:38.7	across all the major asset classes. And since leaving Bridgewater a few years ago,
0:43.6	decided to work on trying to figure out how to bring diversified, low cost, two and 20
0:50.0	strategies to the everyday investor, you know, in the same way, stock and bond indexing has totally changed
0:56.2	investing in those assets. What we're looking to do is bring the same sort of concepts to
1:01.9	two and 20. We started off with hedge fund indexing and are working to build a wide range of products.
1:08.5	Okay. So what is two and 20 for the average listener doesn't know?
1:12.4	I mean, two and twenty is a compensation scheme, which means that it's 2% of assets under
1:17.4	management and 20% of profits. And that compensation scheme is common across a wide range of
1:23.4	different, what are generally described as alternative assets. So assets like hedge fund strategies,
1:29.7	private equity, venture capital, private credit, et cetera. The challenge with those strategies
1:34.4	is that two and 20 can mean anywhere between 400 and 800 basis points of fees, 4 to 8% of fees
1:43.6	for unexpected, unexpected performance. And when you have so many fees, 4 to 8% of fees for unexpected, unexpected performance.
1:46.4	And when you have so many fees, it's very hard for those managers to do much better than
1:52.9	the investor could do on their own.
1:54.7	The manager does well, and those strategies are great for the managers, but they're not
	...

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