Trump Puts ‘Hedge Fund Guys’ On Notice
For a moment there, Donald Trump was starting to sound a lot like Bernie Sanders.

The billionaire Republican front-runner assailed hedge fund managers in an appearance on CBS’s Face the Nation last month in which he portrayed himself as a champion of the middle class.

“They’re paying nothing. And it’s ridiculous,” Trump said of those who make a living running hedge funds. “I want to save the middle class. You know, the middle class—the hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. And, by the way, when the market collapses, like it is now, the market is going down, they’re losing a fortune.”

Sanders, the leading challenger to Hillary Clinton for the Democratic presidential nomination, has routinely gone after hedge fund managers during his populist campaign.

Taxation of hedge fund earnings has not been a central focus of Trump’s campaign. Still, on the Sunday morning news program, Trump took aim at those who profited from the investment strategy.

“Half of them, look, they’re energetic, they’re very smart, but a lot of them, it’s like they’re paper pushers. They make a fortune, they pay no tax. It’s ridiculous, OK? This—and some of them are friends of mine. Some of them, I couldn’t care less about. It’s the wrong thing,” Trump said. “The hedge fund guys are getting away with murder. They’re making a tremendous amount of money. They have to pay taxes. I want to lower the rates for the middle class. The middle class is the one, they’re getting absolutely destroyed. This country doesn’t have—won’t have a middle class very soon.”

Clinton has also woven an attack on hedge fund managers into her stump speeches.

“Something is wrong when CEOs earn more than 300 times than what the typical American worker earns and when hedge fund managers pay a lower tax rate than truck drivers or nurses,” Clinton said in May while campaigning in Cedar Falls, Iowa.

The rhetorical similarities between Trump and his would-be Democratic rivals have given Jeb Bush an attack opening.

“He was a Democrat longer than he was a Republican,” Bush said last month during a town hall in New Hampshire. “He’s given more money to Democrats than he has to Republicans.”
 —Bloomberg News

Hedge Funds Do Half As Well As You Think, Profs Say
It’s the dog days of summer, when college professors are supposed to be doing nothing but mimeographing their syllabus and mending the elbow patches on their blazers (or whatever it is that they do in the summer).

But that’s not stopping some academics from throwing shade, as the kids say, in the general direction of the hedge fund industry.

Their study shows that because of  inherent biases in the way hedge-fund databases compile results, the industry’s returns have been about half as strong as they appear. The average annualized return for the industry since 1996 goes from 12.6% to 6.3% when the biases are removed from the data, according to the paper.

The volatility of the funds increases along with their maximum drawdowns. Also, measures of how the returns data are distributed, known as kurtosis and skewness, also change noticeably.

(The researchers—Mila Getmansky of the University of Massachusetts Amherst, Andrew Lo of the Massachusetts Institute of Technology and Peter Lee of Lo’s firm AlphaSimplex Group—used data from Lipper TASS.)

The biases stem from the fact that hedge funds voluntarily report results to these databases. The main reason they cough up the data is for marketing purposes, according to the paper, and funds generally begin contributing their returns once they have results worth bragging about. And since the funds include prior returns when they first enter the database, it leads to a “backfill bias” or “instant history bias” that boosts the average returns.

Since funds can stop reporting to the database at any time—say, for example, if returns are terrible—this can cause an “extinction bias.” In 2014, they note, the attrition rate rose to 26% in the database studied.
—Bloomberg News