market folly

The Milken Institute just featured a conversation on the evolution of hedge funds and the future of asset management. The talk included Point72's Steve Cohen (formerly SAC Capital), Cliff Asness of AQR, and Neil Chriss of Hutchin Hill.

It's rare to hear directly from Cohen, so it's certainly worth watching the whole chat.  But here's some brief takeaways:

- Steve Cohen: says that there's so many players out there and they're all chasing the same names these days.  He was worried about levered/crowded names and becoming 'collateral damage' and you saw that play out earlier this year. "It's very hard to maximize returns and maximize assets too." He also noted that their data says their team are great stock pickers but not necessarily good at market timing.  In general, Cohen feels that talent is really thin.  He's "blown away" by the lack of true talent.  Later said around 80% of PMs come from inside their firm as they like to provide teaching tools.  "If you're not innovating, you're dying."  He says there's opportunities overseas but their offices there are always going to be smaller than the 'mothership' in the US.  They like to find people who have a strategy, stick to it, and do it over and over again (process).


- Cliff Asness: says that fees in the industry are just too high.  Gotta be more unique ways to structure fees, i.e. based on correlation of returns.  Barriers to entry for newer funds have gone up with increased regulatory environment (compliance, cost, etc).  Moderator says 67% of managers manage less than $250 million.  Asness notes hedge funds haven't performed well since the financial crisis and thinks they should be hedging more and be more uncorrelated to the indexes.  Also says the benchmark hedge funds compare to is simply wrong.  Noted that people overreacted to 3-5 year performance figures.


- Neil Chriss: argues that funds are too much like the indices but also too much like each other.  Says in order to scale in this business you need to be able to handle drawdowns and hire more people, expand into new investments, etc.  Made an interesting point that AUM from the 1990's until present has gone up something like 15-fold, but the talent level has not mirrored that expansion.  Thinks active managers will have more success when monetary policy stops influencing things so much.  On Hutchin Hill's multi-platform, they're looking for good decision makers, as that's ultimately what PMs are.  They want people with track records of good decision making.


Embedded below is the video of their Milken Institute talk: