Brendan McDermid / Reuters
Chamath Palihapitiya told CNBC on Wednesday that the recent trading frenzy stemming from Reddit’s WallStreetBets demonstrates that retail investors can do the same quality of analysis as hedge fund managers who “don’t have an advantage”.
The billionaire investor sees “resistance against the system” on the part of retail investors, many of whom saw their parents lose money during the financial crisis while large institutions on Wall Street were bailed out.
Palihapitiya said that the 2.7 million users of WallStreetBets are as important to the market as any hedge fund. And some Redditors are doing “incredible fundamental diligence”, even better than professional hedge fund analysts.
He also lamented the lack of transparency within hedge funds that maximize profits using top-tier brokers and called for “idea dinners” in the Hamptons, where a select number of managers meet behind closed doors to present investment ideas.
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Investors in WallStreetBets are more courageous than managers, said Palihapitiya, because they discuss their ideas in public and are not afraid to admit losses.
“It takes a lot of faith in the system to be so transparent, to talk about things and then for each individual to decide and do things, whether to buy or sell. And I think this is proof that this retail phenomenon is here to stay” , he added.
He predicted that, in the long run, retail sophistication will reach institutional sophistication, but first, hedge funds must be forced to disclose the details of their business as investors do on WallStreetBets
“My point in all of this, if you want to make the system better and healthier, force more transparency on the institutional side,” said Palihapitiya.
“Why is it possible for someone who runs a hedge fund to basically claim to be market neutral but leveraged? They take a $ 10 billion fund and their principal brokers allow them to generate $ 100 billion of notional exposure – who thinks this is fair? ” said the investor.
“It is not fair to the retail investor because when it explodes and there is a hundred billion dollar hole in a fund, which by the way was exactly what happened in 2008, the government is helping them – and who is the government? from us, “he added.