Condor Options

Paul Kedrosky posts a quick and dirty summary and tag cloud of all the recent “apology” letters that busted [tag]quant[/tag] [tag]hedge fund[/tag]s have sent to their investors. His MS Word auto-summary really caught our attention:

To that end, we’ve already seen increased client demand for our aggressive market-neutral equity fund. From speaking with our colleagues and large allocators in the market-neutral space, we understand that many market-neutral funds have suffered 5-to-15% losses so far in August.

Some thoughts:

1. As Paul says, there’s not much apology in these apologies. We’re not crying too hard for alpha-chasing hedge fund investors, but it’s still rude to send an apology letter that’s more marketing than it is mea culpa.
2. “Increased demand for [tag]market neutral[/tag] funds” – oh really? Come join the party, and, uh, where have you been for the last six months? Oh, you thought that that rally was for real, and that Dow 14,000 actually meant something? How quant quaint. In any case, we’ve been calmly neutral before you hedge funds showed up, and we’ll still be calmly neutral long after you leave.
3. “5-to-15% losses so far in August” – sorry, what? The market’s only corrected 10% from top to bottom – meaning that you could’ve thrown all your cash in at the absolute Dow top, held on stubbornly all the way through today, and still done better than with whatever it is you’re calling a market-neutral strategy. Sounds like you hedgies might actually want to try hedging a position every once in awhile. We’re up 25% since June, and we’re certainly not geniuses.

We really don’t mean to be this abrasive, and we, unlike the unaccountable, unconscionable cadre of hedge fund managers, will actually apologize for our mistakes. But it’s just amazing how wealthy, lazy “accredited investors” will throw their money at anything that moves.