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YC Demo Day Session 2

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Re: YC Demo Day Session 2

#21

Post by ojbyrne »

rememberlenny wrote: post #13
jayp wrote: post #11

Earlier quoted context omitted.

Interesting. If Hedge funds can't event beat a vanilla S&P500 index fund, why would any one want to invest in a hedge fund? http://longbets.org/362/ Buffet (S&P500) is leading against hedge funds on the aforementioned long bet: http://fortune.com/2014/02/05/buffett-widens-lead-in-1-milli... Disclaimer: I am on Buffet's side on this long bet. Management fees are the devil. I am all-in for low-fee index funds.

Hedgefunds CAN beat indexes, but most dont. Most Hedgefunds fail early.

Roulette can also beat indexes, but usually doesn't.

Re: YC Demo Day Session 2

#22

Post by tpeng »

jayp wrote: post #20
tpeng wrote: post #15

Earlier quoted context omitted.

It's mostly irrelevant. No one is investing in the hedge fund average, they are investing in the hedge funds that they think will do well. It's actually the same if you look at VC funds -- the overall returns of venture funds is poor, but the returns of the top quartile of funds is outstanding. In any case, the S&P 500 is not an appropriate benchmark for the hedge fund industry as a whole, because many hedge funds do…

Is it really irrelevant? How do you suppose one tell which hedge fund will do better and which won't beforehand? Past performance? We know that's not a good indicator. If you can tell which hedge funds will do better in the future, you probably can tell which stocks will do better, and then why not just got it yourself without giving someone else 2 and 20? We agree that S&P500 and hedge funds have different risk fact…

Investing in stocks is more labor-intensive than investing in funds. I can identify a few great managers that will do very well over time, write them a check, and be done. By your logic, why should anyone give YC or a16z money? I mean, if I know that YC is better at picking startups, why don't I just go pick my own startups? It's two different skillsets.

It's clearly not the case that I cannot select a set of hedge funds that is less risky than the S&P500. Fixed income funds, for example are much less risky (ignoring for argument's sake some details like inflation risk). I don't know if the "average" hedge fund is more or less risky than the S&P500. Depends how you define average. But no one is investing in the average, you couldn't do so even if you wanted to.

Re: YC Demo Day Session 2

#23

Post by argonaut »

dr_ wrote: post #17

I realize it's hard to predict what direction a company will take in the future, but is it YCombinator's policy to incubate companies that from the start seem to be competing against each other? It seems to me that ListRunner and Medisas ( http://www.forbes.com/sites/alextaub/2014/04/24/meet-medisas... ) do pretty much exactly the same thing.

YC has stated several times that often companies will change ideas after they get into YC. YC thus isn't going to tell them to not do something just because it competes with another YC company.

Re: YC Demo Day Session 2

#24

Post by bjterry »

jayp wrote: post #11
nichodges wrote: post #4

> Sliced democratizes access to hedge funds. Even though hedge funds have outperformed S&P 500 over the past decade, very few investors have access to them. Hedge Funds on average do not outperform market indices such as S&P 500. I'm curious as to whether this was TechCrunch's take on the problem, or the startup's?

Interesting. If Hedge funds can't event beat a vanilla S&P500 index fund, why would any one want to invest in a hedge fund? http://longbets.org/362/ Buffet (S&P500) is leading against hedge funds on the aforementioned long bet: http://fortune.com/2014/02/05/buffett-widens-lead-in-1-milli... Disclaimer: I am on Buffet's side on this long bet. Management fees are the devil. I am all-in for low-fee index funds.

It can make sense to invest in hedge funds even if you don't expect your hedge fund portfolio to beat the market on average, if the hedge fund is uncorrelated with market returns. This is a basic result of Modern Portfolio Theory, but the intuition is that sometimes with the stock market down you will have better performance in your hedge funds (and vice versa), so your account will be less risky in the sense of having shallower troughs. If you want to take on the same risk (i.e. have troughs that are the same depth as if you just held stocks) you can invest more of your capital in stocks/hedge funds vs. bonds/cash, which means you are making better returns. It should be noted that the hedge fund universe is extremely broad, and different funds have different risk/return characteristics.

Venture capital is different because it is both correlated with market returns and the average fund significantly underperforms the market,[1] so getting good returns in venture capital is pretty much a question of getting allocations in the top 20 funds, which are persistently the best. They have the best returns in part because they have the best reputations and thus access to the deals that provide the highest returns (top entrepreneurs would take Andreesen Horowitz's money over money from Unknown Partners on the same terms).

1: http://www.kauffman.org/~/media/kauffman_org/research%20repo...

Re: YC Demo Day Session 2

#25

Post by jayp »

tpeng wrote: post #22
jayp wrote: post #20

Earlier quoted context omitted.

Is it really irrelevant? How do you suppose one tell which hedge fund will do better and which won't beforehand? Past performance? We know that's not a good indicator. If you can tell which hedge funds will do better in the future, you probably can tell which stocks will do better, and then why not just got it yourself without giving someone else 2 and 20? We agree that S&P500 and hedge funds have different risk fact…

Investing in stocks is more labor-intensive than investing in funds. I can identify a few great managers that will do very well over time, write them a check, and be done. By your logic, why should anyone give YC or a16z money? I mean, if I know that YC is better at picking startups, why don't I just go pick my own startups? It's two different skillsets. It's clearly not the case that I cannot select a set of hedge f…

On the other side of the coin, there are index funds for fixed income too. That would be a better compare against hedge fund that primarily uses fixed income assets. (For hybrid hedge funds, there are hybrid index funds too.) Once again, the 2 and 20 payment structure makes it very hard for it to beat a 0.2 fee index fund.

And as for clearly better funds like A16Z and YC now, there have many numerous that have held that crown before. Fees and fund expansion have resulted in worse results -- allowing newer players like A16Z and YC to take off.

My argument is that I don't think it's clear who'll beat the broad market (for their asset class) once the fees are taken out. I suppose we disagree about the value of high-fee managed funds (whether VC, PE, Hedge, etc.). That's fine.

Anyway, enough digression from the discussion on hand.

Good luck to the founders in making their value proposition clear. I am sure there are lots of people want to invest in hedge funds but don't have the funds to invest directly. They will find this appealing.

Re: YC Demo Day Session 2

#26

Post by foobarqux »

bjterry wrote: post #24
jayp wrote: post #11

Earlier quoted context omitted.

Interesting. If Hedge funds can't event beat a vanilla S&P500 index fund, why would any one want to invest in a hedge fund? http://longbets.org/362/ Buffet (S&P500) is leading against hedge funds on the aforementioned long bet: http://fortune.com/2014/02/05/buffett-widens-lead-in-1-milli... Disclaimer: I am on Buffet's side on this long bet. Management fees are the devil. I am all-in for low-fee index funds.

It can make sense to invest in hedge funds even if you don't expect your hedge fund portfolio to beat the market on average, if the hedge fund is uncorrelated with market returns. This is a basic result of Modern Portfolio Theory, but the intuition is that sometimes with the stock market down you will have better performance in your hedge funds (and vice versa), so your account will be less risky in the sense of havi…

A recent FT AlphaVille article described research which showed that Hedge Funds aren't even uncorrelated from the market, only levered or delevered.

Re: YC Demo Day Session 2

#27

Post by [deleted] »

jayp wrote: post #25
tpeng wrote: post #22

Earlier quoted context omitted.

Investing in stocks is more labor-intensive than investing in funds. I can identify a few great managers that will do very well over time, write them a check, and be done. By your logic, why should anyone give YC or a16z money? I mean, if I know that YC is better at picking startups, why don't I just go pick my own startups? It's two different skillsets. It's clearly not the case that I cannot select a set of hedge f…

On the other side of the coin, there are index funds for fixed income too. That would be a better compare against hedge fund that primarily uses fixed income assets. (For hybrid hedge funds, there are hybrid index funds too.) Once again, the 2 and 20 payment structure makes it very hard for it to beat a 0.2 fee index fund. And as for clearly better funds like A16Z and YC now, there have many numerous that have held t…

[deleted]

Re: YC Demo Day Session 2

#28

Post by [deleted] »

bjterry wrote: post #24
jayp wrote: post #11

Earlier quoted context omitted.

Interesting. If Hedge funds can't event beat a vanilla S&P500 index fund, why would any one want to invest in a hedge fund? http://longbets.org/362/ Buffet (S&P500) is leading against hedge funds on the aforementioned long bet: http://fortune.com/2014/02/05/buffett-widens-lead-in-1-milli... Disclaimer: I am on Buffet's side on this long bet. Management fees are the devil. I am all-in for low-fee index funds.

It can make sense to invest in hedge funds even if you don't expect your hedge fund portfolio to beat the market on average, if the hedge fund is uncorrelated with market returns. This is a basic result of Modern Portfolio Theory, but the intuition is that sometimes with the stock market down you will have better performance in your hedge funds (and vice versa), so your account will be less risky in the sense of havi…

[deleted]

Re: YC Demo Day Session 2

#29

Post by GregorStocks »

foobarqux wrote: post #26
bjterry wrote: post #24

Earlier quoted context omitted.

It can make sense to invest in hedge funds even if you don't expect your hedge fund portfolio to beat the market on average, if the hedge fund is uncorrelated with market returns. This is a basic result of Modern Portfolio Theory, but the intuition is that sometimes with the stock market down you will have better performance in your hedge funds (and vice versa), so your account will be less risky in the sense of havi…

A recent FT AlphaVille article described research which showed that Hedge Funds aren't even uncorrelated from the market, only levered or delevered.

Here's the link: http://ftalphaville.ft.com/2014/08/01/1914342/the-hare-gets-...

And here's the best part: http://ftalphaville.ft.com/files/2014/08/Screen-shot-2014-08...

Re: YC Demo Day Session 2

#30

Post by tpeng »

jayp wrote: post #25
tpeng wrote: post #22

Earlier quoted context omitted.

Investing in stocks is more labor-intensive than investing in funds. I can identify a few great managers that will do very well over time, write them a check, and be done. By your logic, why should anyone give YC or a16z money? I mean, if I know that YC is better at picking startups, why don't I just go pick my own startups? It's two different skillsets. It's clearly not the case that I cannot select a set of hedge f…

On the other side of the coin, there are index funds for fixed income too. That would be a better compare against hedge fund that primarily uses fixed income assets. (For hybrid hedge funds, there are hybrid index funds too.) Once again, the 2 and 20 payment structure makes it very hard for it to beat a 0.2 fee index fund. And as for clearly better funds like A16Z and YC now, there have many numerous that have held t…

I didn't say hedge funds shouldn't be benchmarked to their appropriate index, I said that hedge funds as a whole shouldn't be benchmarked to the S&P500 because they're not all equity funds. In fact, the majority of hedge fund allocated dollars are NOT invested in directional equity (not including strategies like merger arb that technically invest in equities but have totally different risk/reward from the market). It's not "the other side of the coin", it's my point exactly.
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