Often what passes for an idea is, on closer inspection, really propaganda – someone wants something, wants to promote something. The hard part is finding a form. The most convincing works tends to be those in which the thinking is inseparable from the doing. The big-idea people will always be among us…. Nothing wrong with big ideas, but they aren’t especially relevant to figuring out how something works – or doesn’t. – from 2. to 1. How 3. See by David Salle
While the author focuses on the idea and work of art, the same also applies to money management. The idea or concept is not as important as the doing. A great art can involve big ideas, but big ideas do not translate to great art. Whether smart beta, risk parity, or new risk premiums, the focus has to be on the details and not just the idea. The manager who sweats the details and does the work will always perform better than the manager who just talks of concepts.
After hundreds of discussions with hedge fund managers, I am still surprised that there is a fear of revealing investment processes under the assumption that someone will steal their ideas and intellectual capital. There are few investment styles that are truly unique and special. What is special is still strategy execution – the practical process of delivering returns. Skill is with the decision-making execution of information and strategy.
All hedge funds are not created equal as the return box chart shows for the post Financial Crisis period. There is a significant amount of dispersion across hedge fund styles. Over the period 2009-2018, the difference between the best and worst hedge fund category is almost 7 percent after we account for global equities and bonds.
The attraction to private equity and other less liquid alternatives is clear from the Guide to Alternatives by JP Morgan Asset Management. The return profile is much higher for private equity and debt funds than more liquid alternatives and global bonds; however, the dispersion in returns is multiples higher than what can be expected from other public categories.
