I was friends with some hedge fund guys in the 2000s. The way they presented it was that some funds have good technology but in the end there is a ton of insider information going around. It may not be strictly illegal (I don’t know) but people talk to each other and sometimes work with each other. They also have access to company executives the regular investors don’t have.
I don’t think it’s possible to get sustained outstanding results without being part of the insider circle. As far as I know one of Warren Buffett’s close relatives was in Congress which probably also gave him access to people most regular citizens won’t have.
I don't expect wikipedia to be a reliable source of information on this topic, but there is an entry that claims that hedge funds already do this sort of thing:
http://en.wikipedia.org/wiki/Program_trading
I'm wondering if hedge funds would buy something that would allow access to private data. I heard insider trading is not an unusual thing, so a polished series of exploites wrapped up as a tool with clear interface might be taken seriously.
Interesting. After watching the show Billions, and reading up on how much money hedge fund managers make on fees (seems totally ridiculous), I wonder how common is illegal insider trading for hedge funds? No matter how good your model is, you won't beat someone with information your model doesn't have.
If that is possible here, there needs to be more regulation on hedge funds so they do not operate in a "heads I win, tails the US govt. bails me out" scenario.
The problem for a type of hedge fund like this is regulation that would apply to your instrument and its potential exposure to illegal activity. That is not insinuating that there IS that activity, but that there is a potential for it, and i can't see how the SEC would approve it.
It would be akin to a hedge fund that was providing hedging to the industry of 'ransomware' or 'illicit drug distribution'. Unless you could ensure that this wasn't possible, I'm not sure you could ever list it.
For it be worth doing for a hedge fund they'd need to be able to put on a sizable trade. Let's say $1mm but probably a lot more. Is there enough liquidity to do this? I have no idea.
Is your understanding that they operate via illegal insider information, or access to information that is very difficult to achieve?
To be clear: I have mined and sold data to hedge funds before, including well known ones, and from that work I derived two conclusions:
1. It is fundamentally possible to beat the market consistently and legally by exploiting information asymmetry, and
2. Most hedge funds, especially the most successful ones, do not operate via illegal insider information (and will, in fact, fly into a compliance department initiated lock down on a security if, say, an overzealous data vendor compromises confidentiality).
Basically, I'm asking for clarification because as stated, I disagree with your assertion here. There are legal grey areas and some people are outright criminal, but overall I wouldn't characterize the top performing funds as being wholly or even close to partially dependent upon insider information, let alone at a systemic organizational level.
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