$60m isn't exactly the real cost to the government, though? Assuming this asset manager is a Norwegian resident, he'll pay a ton of tax (income or corporate tax, VAT, stamp duty on property purchases, capital gains, etc etc) on that money, and eventually given enough time, most will just flow back to the government. The house always wins..
Also, it depends on how much he brings in. For example, there are US based asset managers with private funds that generate 20-30-40% per annum, for over 20 years. If the performance is there, they should get compensated well for that. Otherwise, why put up with the stress of managing billions of dollars?
It is impossible, at least continuously. Nobody has ever managed to do that. You'd be lucky if you could beat the market by a few points on average over a 20 years time period. Compensation well for good performance does not make sense when you aren't penalized for losses.
Right, and a lottery winner who wins a $500MM jackpot on a $1 ticket has annualized return of even more than that, when annualized over the same timescale.
None of that matters if you can't pick the winning players in advance. With enough variance and enough players, someone will eventually have double-digit annualized returns over decades, it doesn't mean that they are necessarily superb investors.
The BIG difference is someone can go invest in Greenblatt or Icahn's fund with a reasonable expectation of these returns ongoing. Not so with a lottery winner.
Simple, compare a large number of investors based on some criteria with the overall average.
AKA, if you think there are people that do better than average, then picking people who have beaten the odds for 10 years and see how they do over the next 10 years. Repeat over a few decades.
There are things that seem to work. The most common way to 'beat the market' is trading a low chance and ideally hidden chance of failure for inflated returns. EX: A 1 percent change of losing 95% of your investment should be worth lot's of money on good years. This is really appealing when investing other peoples money as you don't share in their downside.
People have done it before. It has always turned out to be luck. Fantastic track record until they cease being lucky.
So, cynicism and economic orthodoxy aside, that sounds like a really cool company. Has anyone tried just tossing a big dumb neural network on stock data and investigated whether it can make money? It sounds very obvious, but a quick googling returns little. But I guess the investment industry is pretty secretive by nature.
Renaissance technology is a quantitative trading company, meaning they use computers to trade; they probably do thousands of trades per day, and consistently make a profit. There's approximately 0% chance that it's just luck.
Now, you might say, they were lucky to stumble upon a strategy that works. You can also say that the strategy will stop working at some point (because of competition), so their "luck" will run out, and they might not get "lucky" in time to find a new strategy. But their past performance was most definitely not just "luck".
Btw, in most other professions (e.g. the arts, technical inventions, sports) we call this kind of "luck", "skill".
Are you seriously asking if hedge funds that pay hundreds of thousands of dollars salary to top experts from all kinds of fields have investigated using machine learning?
You can't just "toss a NN to stock market data" and expect good results. There's too little historical data, you can't easily "generate" more data for the network to learn from, making it really easy to overfit. In other fields (e.g. computer vision) a lot of research has been focused on inventing techniques that prevent overfitting, thus enabling "learning" (i.e. generalization of patterns), such as dropout, convolutional neural networks, flipping/rotating images, etc. Very few of these techniques can be applied generally.
Dropout can certainly be applied generally - it's useful as a regularization technique (especially in wide and deep networks) to combat overfitting in other fields than computer vision.
It turns out to be rather difficult, because in most setups you see in the stock market, the market goes up roughly half the time, and down roughly half the time.
There are millions of investors. The chances of a few outliers getting a long streak of returns are pretty good, even if they picked stocks at random. It's impossible to tell in advance who those lucky parties will be. But their existence is very likely.
That's my point. When you have so much money to invest you (are forced to) capture a more representative slice of the market and regress closer to the mean.
Continuously? Ok, perhaps that would be almost impossible, to pull off 20% for 20 years without missing a year.
However, Buffett and Soros managed to average above 20% annual returns over 30 plus years.
For example in the 1960s Berkshire returned 28.3% per year averaged. In the 1970s it returned 22.2% per year averaged. In the 1980s it averaged 39.1% (!) per year. In the 1990s it averaged 20.5% per year.
Nobody would hold their breath on another investor matching Buffett or Soros. It is in fact possible though. The big problem for the Norway fund is obviously the scale. Berkshire at $360b in market cap, will struggle perpetually going forward with keeping up with the S&P 500 over time (as is frequently noted by Buffett).
The thing about both Buffett and Soros is that they get deals that the general investor, or even really good and kinda famous investor, would never get. For example, Buffet did 300 million in unsecured loans (but with front-of-line payback) with Harley Davidson in 2009 at 15 percent, essentially to cover customer financing (i.e. cashflow) not because the company was in any real trouble. You and I would be lucky to find that sort of return from the riskiest loan, let alone a profitable manufacturing company. AND, Buffet could have made more than a Billion extra if he'd bought stock instead of debt, so even when he's wrong he's still getting a sweetheart deal.
It's important to note that this discussion is about a massive sovereign wealth fund, not the average investor.
I absolutely agree that the average person should stick to passive index funds. But if you have nearly a trillion dollars to invest, you'd be a fool to stick to passive strategies.
Yeah, the oil fund averages just 0.25% above index, and that's without the extra cost of being actively managed factored in (although its huge size probably makes it impossible for it to be passively managed).
So at this stage factoring in the active management cost they are outperforming the market. Of course we don't know in the long run whether that will continue to be the case.
It's not controversial that there are funds with high returns over long periods. The problem is that there are also funds with high returns that suddenly nosedive, and new funds from people with high returns in the past that doesn't do well at all.
In other words: it's easy to pick the lottery numbers with hindsight.
I dont have pics, but insight. Typically these are funds exclusively for high net worth individuals. They are not advertised. They select who they let in and have limited pools of investment given they invest in areas/business that dont scale to trillion dollar levels type thing. They get to invest in business etc before the open market via their relationships which is I assume why they can get these returns. My source is a friend who is a partner in one of these funds. They average well over 20% return before fees. Typically they want people with $50m investable before your worth the conversation. And the sad thing for people like us is they are typically asked to preserve wealth (aka make sure I'm never poor) and and growth is secondary consideration.
So, by its very nature, investing based on access to privileged opportunities. Who's to say it is not based on leveraging privileged information too? In other words, a type of insider trading. Or market pre-loading.
Guess public sentiment hasn't caught up to such practices, yet, so they can get away with it.
What is the failure rate for such private funds? Obviously, we may never hear of their failures, just as we don't hear of their successes.
> investing based on access to privileged opportunities
I feel you really taking a bias stance here without understanding the mechanics. Yes privilege exists, the same as you friend might tell you a job is opening before its open knowledge. But deals will be shopped about. The big difference is many deals cant reasonably go to the public market. Costs for listing regulations would be significant and unnecessary. Consider, you need to be called as a 'sophisticated' investor even to trade options. This is to protect the public from unscrupulous pyramid schemes and business that carries high knowledge levels to understand what your buying into. It's as much about protecting the public keeping some deals away from open markets as being 'privileged'.
> Obviously, we may never hear of their failures
If your around this industry you hear plenty of both sides. Bigger ones go to public news like Madoff.
Also, it depends on how much he brings in. For example, there are US based asset managers with private funds that generate 20-30-40% per annum, for over 20 years. If the performance is there, they should get compensated well for that. Otherwise, why put up with the stress of managing billions of dollars?