Hedge Funder Explains Continuing Under-Performance Of Long-Short Equity Hedge Funds

Co-founder of hedge fund Highline Capital Management (which manages more than $2.5 billion in assets) Jacob Doft was recently on Bloomberg to opine on the poor performance of long-short equity funds during the last several months.

Why Have So Many Equity Long-Short Funds Struggled?

“I don’t know a lot about other funds, but from what I understand, some funds have given up on short selling specific equities,” Doft said.

“They have embraced ETFs and indices and so they miss out on all the alpha that one can earn short selling."

"I think at Highline we take that very, very seriously. We short company specific equities. We earn a lot of alpha doing it.”

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Asset Management Fees?

When asked about why hedge funds earn 2 percent as asset management fees when they invest in ETFs and indices, Doft agreed with the counterintuitive nature of the situation. “I agree with you, I think that that is not a true long-short equity fund, and so I understand that there is a need from time to time to hedge and there are incredible securities that allow you to hedge specific risks."

How Does Highline Fit In?

He elaborated further saying, “Some of these investors are brilliant long investors and use market indices to hedge out their market exposure. I think at Highline we view a lot of our edge as being good short sellers, and so we want to short sell specific equities that we have done our work on. And over the last few years there has been good alpha available in doing that.”

Are Event-Driven Hedge Strategies In Danger Of Becoming Worthless?

“Event driven is going to be successful as long as interest rates are low. Companies can do proactive things to increase value, and activists can come in and force them to do so,” Doft replied.