Former Hedge Fund Manager Reveals Wall Street’s Dirty Little Secret

Kristin Orman By Kristin Orman, Research Analyst, The Oxford Club

Market Trends

Most professional money managers wouldn’t know a successful investing strategy if it hit them in the face.

I should know…

I’ve butted heads with many of them over the years.

And the truth of the matter is most active fund managers are comfortable with returns lower than the U.S. inflation rate.

Today, I’m going to reveal a secret that Wall Street doesn’t want you to know about…

I’ll tell you the real reason why hedge funds consistently underperform the S&P and why you shouldn’t touch actively managed funds with a 10-foot pole.

Too Contrarian for the “Professionals”

What feels like a lifetime ago, I worked and lived on Wall Street. I managed money for a large hedge fund.

Most weeks, I spent 100 hours on the job. I quickly became one of the few female traders and portfolio managers in the business.

Eager to make my mark, I put my research skills to the test. And I discovered a better and more consistent way to significantly boost our fund’s returns.

I discovered a group of dividend stocks that has beaten the broader market by 689% for the past two decades.

But the fund I worked for didn’t want anything to do with my research…


When I shared it with the managing partner, he didn’t care about the superior returns. He didn’t want to hear about my findings because the strategy wasn’t “active” enough.

He said that potential investors want to see more trades in today’s most popular stocks on the fund’s books. That’s why professional managers buy the same stocks as their peers year after year.

It was then that I learned Wall Street’s dirty little secret…

The Death of Alpha

In the world of money management, assets under management (AUM) are king. Many of the investments are there for one reason – to attract more investors.

That’s why the investor relations departments of most of these funds are as big, if not bigger, than their research teams.

Money managers should be producing “alpha,” or market-beating returns, for investors.

But that rarely happens.

Since 2006, 99% of actively managed funds have failed to beat the S&P 500.

And it’s no surprise… Hedge funds were up an average of 2.3% during the first quarter of 2017. That’s less than half of the S&P 500’s 5.3% gain.

For many of these managers, the easiest path to more money is raising more capital. Alpha is no longer the top priority…

AUM fees pay inflated manager salaries and keep the office lights on. Investment returns pay bonuses.

So actively managed funds continue to invest in the same underperforming stocks. Worse, they continue to charge their investors high fees for the “privilege” of doing so on their behalf.

I soon became disgusted with the Wall Street system normalizing subpar returns. These professional managers were perpetuating the curse of the average investor.

And I knew that I could help investors do much better.

So I left New York and walked away from my career as a portfolio manager. I haven’t looked back yet.

Reconnecting With Like-Minded Contrarians

Shortly after shutting the door on Wall Street, I reconnected with my former colleague Marc Lichtenfeld.

We’d kept in touch since working together at the independent research firm Avalon Research Group and often shared investment strategies and ideas.

He introduced me to The Oxford Club. Here, I found other analysts and strategists like myself that are more interested in making money for their subscribers than winning a Wall Street popularity contest.

So when the opportunity arose to join Marc at The Oxford Club, I jumped at it. And I’m happy that I did.

At the Club, I work with Marc and the other editors to develop strategies to create their own alphas, instead of chasing somebody else’s.

In the next couple of weeks, I’ll reveal the dividend stocks that outperformed the broader market by nearly 700% over the past 20 years. The loss of my former actively managed fund will be your gain.

Good investing,

Kristin