FT Alphaville’s Dan McCrum has been on a “zombie” jeremiad, with a series of posts lamenting zombie hedge fund performance statistics.
The hedge fund performance stats are zombie figures because two-thirds of all hedge funds are now defunct, dead or disappeared. You can look at the ten year-track record, but when the average fund only lasts for five years, it says nothing about the hedge fund industry as it stands today.
Two days prior (January 6th) McCrum wrote: “Smart enough to avoid a zombie bite?“:
… the majority of hedge funds monitored by the main industry databases are already dead – their investment track records live on as zombie performance. The average hedge fund that survives its first year only exists for another four before joining the ranks of the undead. … the industry as it exists now bears no relation to the track record on which it is sold. That belongs to the zombies.
Both posts refer to this prior (December 9th): “Zombies are the wrong kind of mean“:
…Spencer Jakab leaves his zombie repellent behind on Monday, when he speculates in the Wall Street Journal that the formerly decent returns of the hedge fund industry will return once central banks begin to retreat from markets. The problem is mean reversion. It may be one of the most powerful forces in the investment universe but, as we have said before, it doesn’t apply when you try to compare the zombies of the 1990s and early 2000s to the lumbering, fee eating, industry as it exists today. …the basis for hedge fund indices in which two-thirds of the funds are inactive zombies … there is no hedge fund performance pendulum to swing back. The zombies have eaten it.
Query: What is the right kind of mean?
Meanwhile, consider the connection of zombies to math and statistics. Note also that the word “mean” is used in math to aggregate numbers into averages but is also the same English word used to describe unpleasant or aggressive behavior. Consider other the “aggre”-prefix and consider the gamers-verb “agro” and consider if the purpose of hedge funds is to create hostility in the markets.
McCrum’s argument that the “Zombies are the wrong mean” uses zombies to mean bad stats or misleading information. That article also links back to another prior McCrum-zombie (October 3rd): “Return of the living dead, hedge fund edition“. McCrum also used the “Walking Dead” metaphor to describe these these hedge fund zombies on October 8th, “Walking dead update” and on November 8th, “Another walking dead update” about
the still-living ranks of the zombie industry doing
And see also, October 11th: “Step one in zombie prevention: pants on“; December 9th: “Two and twenty is long dead and buried“; December 18th: “Three things long/short hedge funds cannot do (well)“:
… we suspect that the ranks of the zombies will be swelling again soon, because of the simple fact that the five-year track record of stock-trading hedge funds is horrible.
All of these McCrum-zombie links are conveniently tagged “zombies” by Alphaville and there are only three prior Alphaville-zombies before McCrum’s recent spat; the first two were from Tracy Alloway in 2009 (“Zombie maths” and “Wall Street and ZOMBIES“) and then Bryce Elder in 2011 (“28-Day Traders Later“)
Also for FT, last April, McCrum wrote: “Calpers to awaken zombie boards” and he used “zombie” in quotation marks to refer to “zombie” directors that he then attributed to Anne Simpson:
… the largest US public pension fund is preparing to take on “zombie” directors and rogue pay arrangements …
“These zombie directors are the living dead case for why we need the proxy access that the SEC could not deliver,” said Anne Simpson, head of corporate governance for Calpers.
I thought maybe this is when McCrum got bit with the metaphor but no, he also used it the year earlier, August 2012: “US inflation fears hover in the wings“:
Dire inflation warnings live in a particular subculture of Armageddon-upmanship, a world where an economic volcano is always rumbling, a mountain of debt is about to collapse, or zombie banks are awakening to terrorise the land.
So his use of the word is not new, but why is it resonating so strongly for him recently?