Long / short ungeared maybe. 6 times leverage. Ouch...eventually. But what do I know....
In any event, a valiant effort.
The argument is that somehow it works, that there is no survivorship bias, that whatever Q has in mind will work, based on the fact that it is established within the industry that it is a path that can be made to work. But then have a look at:
At a gross level, the case doesn't seem very strong. Also, if one sorts on the '5 Year(%)` column, there are a lot of newcomers. Either it is a growth industry, or there is a lot of turnover, due to failures.
Regarding leverage, it is a total mystery to me. I guess the basic formula is that Q would demonstrate (1+r)^n consistent returns, suggestive of a bank CD, and then they'd get some entity to lend them money, to increase the capital level (presumably, the broker makes the loan, but where does the broker get the money?). If things start to deviate too much from the (1+r)^n return, then the lender pulls back his capital. I don't understand this whole thing. If I "lend" $100 to Q for their fund how would this be different from my "investing" $100? I guess if I'm an investor, there is friction preventing me from pulling my money on a dynamic basis, whereas if I'm a lender, as part of the loan agreement, I'd have my hooks into the minute-by-minute status of my portion of the investment, and could add/drop capital per some agreed-upon rules, but since I get to do this, I don't get any of the return stream, I just get to charge fees/interest. Correct?
So, why would 6X leverage be a problem for Q? Would it tend to endanger their 1X capital outlay? I guess the idea is that a "margin call" would be made at an inopportune time? Wouldn't it be the lender who is at risk? Or is the idea that they'd grow the business based on returns from 6X leverage (e.g. headcount, leases, pc's, desks, cubicles, etc.), but if the leverage gets reduced, then they won't be able to pay their bills?