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well if that person ran an ablouste return fund and the investor got upset because they underperformed an index then that investor would be an idiot who didnt understand what kind of fund he was invested in. ablouste return funds are typically hedge funds/advanced strategy funds who could care less about the indexes and their under/overperformance compared to them. they aren't judged on their relative performance, they're judged on their ablouste performance.if the investor was in a mutual fund and they underperformed, then he would be right to take his money out because they didn't achieve their goal, which was relative return.i guess i'm saying investors in ablouste return funds should know that the fund they are in doesnt care about the indexes. if they were trying to compare an ablouste return fund on a relative basis, then that investor would be an idiot who didn't understand what kind of fund they were in to begin with haha.hopefully you get what i'm trying to say. ablouste return funds shouldnt be looked at on a relative basis because that's not their goal. if an ablouste return fund manager is scrutinized for underperforming an index, then those people in the fund don't know what an ablouste return fund is in the first place, because they would know the funds goal is not outperformance of the s&p.relative return funds (mutual funds) need to be judged on a relative basis. ablouste return funds (hedge funds) need to be judged on an ablouste basis. otherwise, its like comparing x performance to y index and y performance to x index... it doesn't match up.
almost eleven years ago
Laurenn
well i think its safe to say you wouldn't "promise" ainthyng because thats just setting yourself up for disaster.in terms of volatility and investors wanting to bail. typically, investors in those sorts of funds would be locked in for x initial time period... 1 year, 3 years, 5 years.. whatever it may be. so, you've got a good timestamp to smooth out the volatility or at least dampen it with solid returns.as far as prospectus/goals go, you'd outline to them that it is an absolute return fund that seeks to achieve a positive absolute return regardless if the market is up or down. you could state that you're seeking low correlation to the financial markets performance. and, you will do this through use of effective long/short positioning, raising short term cash, using derivatives/options, etc. just depends if you're a long/short fund, long only, short only, market neutral, etc.whether or not the portfolio actually delivers an absolute return is dependent obviously on the manager. so, investors would have to gauge that manager's absolute return record and his historical correlation (or lack thereof) to the markets.so you're not going to "promise" to beat the markets, that'd be insane haha... "i GUARANTEE we will make 20% a year or your money back" sounds like some cheap commercial hah. you'd just outline that the *goal* is to seek positive returns no matter the market environment. you're going to outline your goals and the expect correlation of the fund but provide explicit disclaimers regarding the risky nature of the investment and the amount of volatility expected based on the manager's past. using exact numbers though in the predictions is setting yourself up for disaster though, unless the person's track record is so precise you can peg it to a range.