I worked for a technical trend following CTA in the 90′s that had a severe drawdown of -55% over the course of a year. It started with one bad day and the company was never even remotly profitable again and the owners closed it down 3 years later.

I think that people don’t understand that in order to make incentive fees the hedge funds have to make new highs, just being flat doesn’t cut it. Unless they are constantly making new highs, the hedge fund business is the same model as the mutual fund biz but with much higher overhead.

Alternatively they shut their existing funds down and open new ones to reset the mark but its hard to replace the truely large capital pools.

Interested in your thoughts.