macrocephalopod

the period from feb 2020 to jan 2021 will be remembered as the 12 months that ruined most HFs sharpe ratios. almost every single strategy i am aware of that uses leverage of any form had a period that screwed up their stats or had markets move faster than they could call capital.

True and the response from hedge funds will be to spin these events as one-offs and start presenting “adjusted Sharpe ratios” which filter them out, or using alternative performance metrics that look better.

maybe that works, i am just a sub-scale nobody hustler but, from what successful peers tell me, for big money like FoF, you get really penalized by outliers from allocators

True they don’t like an outlier — but there’s a spectrum. Worst kind of outlier is to lose money when the market is also down big (Mar 2020). Second worst is to lose at the same time as other funds (Jan 2021 to some extent but by no means all funds).

Losing money in a totally idiosyncratic way can actually be looked on favourably by smart allocators, because it’s diversifiable and the existence of the drawdown proves the existence of the risk premium the fund is trying to capture.

too many people that claim to (and) do different things lost money on the same month though.

In Mar 2020 yes. Is that true in Jan 2021? As far as I can see the biggest losers are all long/short funds with big portfolio overlap.

I expected, and prepared for, contagion into other strategies like quant equity, global macro, fixed income RV, various arb strategies - but that hasn’t happened (yet)