Episode Summary
Executive Summary: John Kaplis argues hedge fund databases systematically mismeasure the industry by missing large, high-performing funds and including lots of non-fund noise, which depresses reported returns and weakens allocator models. Pivotal Path’s complete coverage, direct manager relationships, and benchmark design aim to improve due diligence, allocation decisions, and manager discovery as hedge funds regain relevance amid liquidity demand and industry institutionalization.
Main Topics: Why hedge fund data is incomplete and biased (Priority: 5/5): Kaplis explains that hedge funds are not required to share data publicly, so commercial databases depend on voluntary disclosure and public scraping, which skews coverage toward lower-quality or more visible vehicles. Pivotal Path’s differentiators: coverage, data, benchmarks (Priority: 5/5): Pivotal Path emphasizes complete coverage of institutional-quality hedge funds, direct manager relationships, and benchmarks designed to better reflect real hedge fund strategy performance for allocators. How bad data distorts returns and allocations (Priority: 5/5): The discussion highlights that missing top-performing funds and including non-hedge-fund structures creates artificially low benchmark returns, which can cause allocators to underweight or eliminate hedge fund exposure. Hedge fund industry flows, liquidity, and competition with private markets (Priority: 4/5): Kaplis argues hedge funds have faced competition from private equity and private credit, but liquidity, transparency, and stronger recent performance are improving the case for hedge fund allocations. Current 2025 strategy performance and allocator interest (Priority: 4/5): The conversation reviews year-to-date strategy winners and losers, including strong equity quant and credit, weak managed futures, and solid global macro discretionary performance. Industry evolution: transparency, SMAs, and institutionalization (Priority: 4/5): Hedge funds are becoming more transparent and customizable through separately managed accounts and more sophisticated LP-GP relationships, while the industry is also institutionalizing through consolidation and succession planning. How funds get on the platform and what investors really need (Priority: 3/5): Pivotal Path adds any institutionally relevant manager based on investor interest, prime broker networks, and operational capability, then helps clients efficiently evaluate managers at scale.
Key Arguments: Commercial hedge fund databases are structurally incomplete because managers are not obligated to disclose data and many high-quality, billion-dollar-plus funds choose not to share it. The missing funds are not random; they tend to be higher-quality managers with materially better performance, which means benchmarks built from commercial databases are biased downward. Commercial databases also include noise such as funds of one, managed accounts, feeder funds, redundant share classes, and drawdown vehicles that are not true institutional hedge funds. Better data changes asset allocation decisions because even small differences in alpha can materially alter whether institutions allocate to hedge funds at all. Liquidity is becoming more valuable again, especially after experiences like the GFC and periods of public-market volatility, which favors hedge funds relative to private markets. Hedge funds are becoming more transparent and customizable, with separate accounts and more tailored solutions increasingly common. The hedge fund industry is institutionalizing, with consolidation, succession planning, and multi-generational firm structures becoming more important. Pivotal Path’s role is to provide factual, complete, scalable manager data so allocators can answer due diligence questions efficiently and with confidence.
Data Points: Institutional capital covered by Pivotal Path clients: over $500 billion - LPs collectively investing actively in hedge funds with Pivotal Path Funds covered: over 3,000 hedge funds - Pivotal Path’s coverage universe Hedge fund capital represented: over $3 trillion - Estimated hedge fund capital covered by Pivotal Path Pivotal Path’s exclusive funds performance premium: over 4% more per annum - Funds exclusive to Pivotal Path versus others, 2013-2022 Alpha share of excess performance: almost 4.5% of that is in the form of alpha - Performance advantage for Pivotal Path-exclusive funds Evaluation period: 2013 to 2022 - Period used in the cited performance comparison Hedge fund industry size estimate used by Pivotal Path: a little over $3 trillion - Kaplis’s estimate of global hedge fund industry AUM Multistrat growth: from under $100 billion to close to or exceeding $400 billion - Growth in multistrat assets from 2018 to 2024 Year-to-date Pivotal Path composite return: over 2% - Composite return through May 2025 Composite annualized volatility: about 3% - Pivotal Path composite volatility S&P historical annualized volatility: about 16.5% - Contextual comparison for hedge fund composite volatility S&P drawdown referenced: 19% - February to April drawdown during 2025 Funds positive year-to-date: 66% - Share of covered funds positive through May 2025 Positive funds average return: up about 6.2% - Positive managers’ year-to-date performance through May Negative funds average return: down about 7% - Negative managers’ year-to-date performance through May Equity quant year-to-date return: up 7.4% - Through May 2025 Equity quant 3-year annualized return: over 11% - Longer-term performance for equity quant Equity quant 5-year annualized return: close to 10.5% - Longer-term performance for equity quant Credit strategy annualized return: 6% to 7% per annum - Recent credit hedge fund performance Multistrats year-to-date return: about 2% - Through May 2025 Managed futures year-to-date return: down over 10% - Worst-performing strategy through May 2025 Managed futures 1-year return: down about 15% - Recent performance through May 2025 Global macro discretionary year-to-date return: up over 7.5% - Through May 2025 TMT correlation to Goldman Sachs VIP longs: about 0.93 - 18-month correlation cited for sector-focused long-biased managers TMT correlation to Nasdaq: about 0.92 - 18-month correlation cited for sector-focused managers Multistrat correlation to S&P over last 12 months: 0.75 - Discussed as surprisingly high for market-neutral perception
Pivotal Quotes: "Funds that are exclusive to Pivotal Path... actually have over 4% more per annum in performance." — John Kaplis: Explaining why missing top funds materially biases commercial database benchmarks "400 basis points can easily be the difference between a model... a significant allocation to hedge funds in general or zero." — John Kaplis: On how benchmark quality affects allocator decisions "The most common example is that if you talk to a fund and you ask them, you know, what's your strategy? Who are your peers? What do you think your edge is? So many times, these managers... say... we don't have a peer group." — John Kaplis: On a recurring communication mistake by hedge fund managers
Implications: Allocators should be skeptical of commercial hedge fund databases and benchmark-driven narratives. Better coverage and cleaner classification can materially change portfolio construction, especially as liquidity, transparency, and institutionalization make hedge funds more competitive again.
About Other Peoples Money
Other People's Money is the premier podcast about the business side of the fund management industry. Every week Max Wiethe sits down to learn from some of the best entrepreneurial fund managers about their experience launching and growing a fund management business. OPM is not a show about the next hot stock pick or big trade but an inside look at an opaque and misunderstood industry guided by real professional fund managers who've done it themselves. Follow us on: Max's Twitter: https://x.com/maxwiethe OPM on Twitter: https://x.com/opmpod Watch OPM and our Partner Show Monetary Matters on YouTube: https://www.youtube.com/channel/UCeyqw1Ns_cnhSJh5XvXPWgw