These two facts are not connected at all. There's no reason to assume the market cannot work or reliably find the "most productive" uses of capital in the aggregate.
> And an efficient market would allocate a lot of capital to her
Then that would give a single individual more control over the market than is healthy and would naturally tend towards inefficiency. The basic presumption here is that centralization of the economy around a limited number of entities is great for efficiency. I can find no examples in history of this and I can find many where this actually just increases corruption.
Given everything we learned about the "too big to fail" era I find articles like this to be obvious and grotesque lies.
Right, but just because it works "in the aggregate" doesn't mean that's how things work "should" work. I'm sure the road network would still muddle on if we allowed drunk drivers to drive, but we still ban them from driving. The article isn't even arguing for government intervention; it's just describing how things plays out naturally.
>The point of a financial market is
no, the point of a financial market is to be a place where people who need money for lucrative projects can get it, and a place where people who have money can invest it, decoupling those transactions from the term of the investments and the irregularities of the different economic opportunities. To put it in simpler terms, think of the market of a town in medieval england, a financial market would allow you to know nothing in particular about farming but invest profitably in the farming activities of the town, getting what portion you want of your money back whenever you want it.
>to allocate capital to its most productive uses
is in the nature of a market that has the features markets need to function efficiently.
The point of a financial market is capital allocation, and people will partake even if the market is inefficient. Consider illegal/black markets, they are often cited as truly free markets where you can invest large sums of cash or buy anything for a price, and even though the prices are high, there are customers. Those markets can be made more efficient, but the fact they exist shows the power of markets without efficiency.
>>And an efficient market would allocate a lot of capital to her
>Then that would give a single individual more control over the market than is healthy
one of the features a market needs for efficiency (think of efficiency as "goods at a fair price") is that no participant alone can affect the prices; for that to be true there needs to be competition, and without it you get "market failure", a market where participants receive no benefit from participating. (markets should operate at a point where sellers are saying "that price offer is too low" and buyers are saying "that price offer is too high", but all the "great deal, I'll take it" transactions that already took place to get it to that point are were the happiness is created from thin air.) as new information emerges, prices can shift up and down to maintain that "take it or leave it" equilibrium.
no system is perfect, not democracy, not the courts, etc., but regulations and people mostly acting sensibly even in self interest makes markets the best method we have of allocating happiness most effectively.
being cynical about market capitalism is understandable, but it doesn't get you anywhere, other systems demand even more cynicism.
But all things being equal, investors would like their money allocated into projects with the best returns. Borrowers of course would prefer that they get the money so that doesn't really tell us anything, but society as a whole would rather that worthy projects are funded rather than a linear city in the desert or whatever.
>and people will partake even if the market is inefficient. Consider illegal/black markets, they are often cited as truly free markets where you can invest large sums of cash or buy anything for a price, and even though the prices are high, there are customers.
A good that can't be acquired on regular markets has a price of infinity. A black market might be more expensive than some place where it's legal, but it's still cheaper than the alternative.
you are describing the process by which competitive "jostling for the best returns / cheapest capital sources" produces market efficiency, which makes it pointless to try to find better returns or cheaper capital. Not having to think about that is a reward itself. The price of oil is established by auctioning off more oil every day; if you buy some at an auction, you're doing the best you can do, there is no better place to invest in oil, you can focus on driving your fleet of delivery trucks.
(sad bear, or dog in lab with goggles meme)
I have no idea what a hedge fund is.
so probably "funds that focus on obtaining private information, or flaws in public information"?
focusing on alpha and finding undiscovered alpha are not the same thing, and it's absolutely not clear and contrary to portfolio theory that you would succeed
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I have no idea what a compiled language is.
This sounds like any of a dozen different computer science university programs I am familiar with.
https://www.theargumentmag.com/p/the-problem-with-bossbabe-l...
Weird numbers to pick here. I know like 10 guys off my personal contact list who can do 4 Sharpe at 5 million easy. The "game" in hedge funds isn't 4 Sharpe at 5mio AUM, its 1.5-2 Sharpe at 1b AUM or 1 Sharpe at 10b AUM, both of which are infinitely harder than 4 Sharpe at 5mio AUM. You can do 4 Sharpe at 5mio AUM after 6 years at a BB in anything that's not equities or delta 1.
Can you explain for a non-finance audience?
Super super ELI5 is that people don't like volatility in returns, even if the returns are good (i.e. down 40% one year, up 200% the next year is 34% CAGR, but crazy volatility). T-bills for example have extremely low volatility but also very low return. The holy grail is very low volatility with a great return. A 4 sharpe fund is in that quadrant.
So how do they do that? I'm a lot closer to 5 million than than 10b...
You know how there's a boots on the ground truth to what an early tech startup's Incentive Stock Options are actually worth nowadays, and how people should think about them (but that most startups won't admit)?
With that secret reality in mind, how should software engineer candidates considering working for a hedge fund or private equity job think about the compensation there? Maybe especially about "carry"?
A recruiter for a firm seeking a "Principal" level engineer, which would require moving to NYC, mentioned compensation of "$X salary, 50% bonus, and $Y carry". Where $X is a usual current non-FAANG Senior+ startup SWE salary, and Y is only a bit larger than X.
The recruiter opened by stating the single number $((X*1.5)+Y), as if it were the annual TC familiar to us from levels.fyi.
When I Google for "carry", it sounds like some speculative share of something unclear about some investments the firm owns or manages, and then this share might vest over 5-10 years, if I remain with the firm that long. The $Y dollar amount sounds like it's a fixed amount bonus or capped value of a share. Also unclear whether there's an additional $Y+ grant of carry each year.
If this were most tech startup ISOs, I would know that the ISOs were probably worth $0 or less, and in some ways rigged to be that way, even if the company has a successful exit from which people with real shares profit.
For this $((X*1.5)+Y) job, the $X salary alone will cover a lifestyle of renting a modest apartment in Brooklyn, plus decent savings building from whatever the rest of it is. I'm unclear whether the bonus and carry make it even competitive with Google L6, though.
What do I need to know about "carry" or other aspects of the compensation? What time horizons and probabilities are involved?
How do I declare for the inaugural Hedge Fund Draft?
themafia•1h ago
ioblomov•1h ago