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Hedge Funds vs Prop Firms…Discuss

By | Dec 01, 2018

Hedge Funds vs Prop Firms…Discuss

I ran a “prop firm”, which means we had no outside investors. So if we incurred a loss, it came directly out of owners pockets. There’s no one else to pin the loss on.

Hedge funds trade “OPM” – other people’s money. So when a hedge fund assumes losses investors take the hit as staff run the risk of being fired. A good hedge fund is one where executives put capital on the line. For all kinds of reasons, this doesn’t always occur, though.

So when you get these big epic declines, executives have future bonuses frozen beneath “hurdle rates” or high-water marks. In plain English, this means: “You ain’t getting a dime until I’m made whole on my losses.”  Scores of crypto hedge funds are shutting their doors & assuredly some of them are wrapping up because people in charge know they won’t make any dough unless BTC rallies to $16k. Easier to walk across the street & start anew than clean up your mess. Rampant hedge fund closures signal two things: bear markets and “talent” on the move.

Prop firms tend to shutter when opportunity windows slam shut; hedge fund closures at times indicate a stealth personnel reconstitution. “Animal spirits” come alive when people see opportunities. High-profile job departures tell a story; the question is which one.

2018-12-02T07:19:14+00:00 December 1st, 2018|

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