Active vs Passive - math.nyu.edu
Transcript of Active vs Passive - math.nyu.edu
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Active vs. Passive Equity Investments
Index Funds, Mutual Funds, ETFs, Hedge Funds
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A brief history of Hedge Funds (1990-2017)1. Classical Period (1990-1999)
Steady linear growth of number of funds, performancevery superior to index
2. Modern Period (2000-2007)Exponential growth of #funds, performance not much betterthan index. Proliferation of quant funds.
3. Post-modern Period (2008-2017)Modest to no growth in #funds. Performance inferior to index. Consolidation of assets in fewer, large, HFs.
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Hedge Fund Creation & Liquidation
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The concept of AUM-weighted returns
Imagine that each dollar is invested for 1 year and that we record the return for that year.
The impact of AUM on performancecan be modeled as the average annual return of a dollar invested since the beginning of HFs.
Mathematically, this is the AUM-weighted return.
π΄ππππ π = π=1π π΄ππ(π) Γ π (π)
π=1π π΄ππ(π)
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Comparing HF returns with Indexing returns
Blue: S&P500 : 11%
Red: AUM-weightedreturns
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Regression analysis: AUMWR vs log(AUM)
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Performance of top 20 US HFs in 2016