Distributed Hedge Funds

Will they destroy the hedge fund cartel and encourage innovation?

Hedge Funds Haven’t Changed in 70 Years

The hedge fund was invented in 1949 by Alfred Winslow Jones. Despite  many advances in the financial industry since 1949, the industry created seven decades ago  looks remarkably like the industry that exists today.

The Evolution of the Tranditional Hedge Fund Model

Hedge fund model 1949

Hedge fund model 2019

Why are Hedge Funds frozen in time?

We investigated the open question: is the hedge fund industry a cartel?

Whenever an economist sees an industry in stasis, one that displays little innovation or structural change, his first hypothesis is that the industry is a cartel.

The formal definition of “cartel” is an association of manufacturers who cooperate to maintain high prices and to restrict competition.

Yes, Hedge Funds Are A Cartel

The formal definition of “cartel” is an association of manufacturers who cooperate to maintain high prices and to restrict competition. The hedge fund in- dustry is a cartel, and the existence of this cartel imposes costs on hedge-fund con- sumers and market participants.

Proof #1: Agency Problems

Organizations are controlled by asset managers whose incentives differ from those of the people who own the assets.

Proof #2: Employment Restrictions

Uncertainty about future performance leads to restrictions on indus- try employment.

Proof #3: Limited Competition

Regulatory and compliance costs create minimum viable size con- straints.

  The Solution

Distributed Hedge Funds – A Paradigm Shift

What the heck is a distributed hedge fund? The key difference in business model changes the very definition of what a hedge fund is.

Traditional

A single pool of capital, controlled by a manager, with stakes owned by individual investors through a limited partnership structure.

Distributed

A mechanism for discovering alpha and profiting from it.

The DHF Model is Different

Designed to Scale Infinitely

DHFs can pool together infinite amount of capital as the platform gain popularity.

Less Risks for Investors

There is no lock ups of capital. Investors can exit a strategy whenever they feel like it.

Lower Barrier to Entry

Since anyone can publish their strategy, the platform is truly a meritocratic playing field.

Hedge fund model 1949

Hedge fund model 2019

book cover v1_Distributed Hedge Funds (DHFs)

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