andrewbeer

    Today's Post

    Hedge Funds and Position Crowding Move over! It's crowded in here. What happens when hedge funds crowd a trade? Guest columnist Andrew Beer looks at hedge fund performance and the crowded trade.

    By Andrew Beer As of mid-month October, the S&P 500 was down over 5% and the MSCI World was down 6%. In this context, drawdowns among hedge funds have been unexpectedly large.  Before fees, the HFRX Global Investable index was down over 4%, while the Equity Long/Short and Event-Driven sectors were down 5% and over 7%, respectively (note that the reported losses are lessened by the reversal of accrued performance fees).  The average alternative multi-manager mutual fund (generally with 0.2 to 0.3 equity beta targets) was down 3% net of fees. What explains the underperformance?  A significant portion likely is due to position crowding, which occurs when many hedge funds hold similar positions. In good times, additional buying can support stock prices and contribute to excess returns. For instance, the GS VIP index, which tracks positions in which hedge fund managers have a significant stake, outperformed the S&P 500 index by around 400 bps (per annum) from 2009 to September 2014. Performance like this is used to support the thesis that hedge ...

Featured Post


The Skorina Report: Another try at herding Gotham’s five-headed fund

Guest columnist Charles Skorina looks at the five-headed NYC pension system with its new leader, Scott Evans.

By Charles Skorina In July, Scott Evans reported for duty as Chief Investment Officer in New York City's Bureau of Asset Management, where he'll manage $160 billion in employee pension funds. Traditionally the city's CIO is replaced when the political wheel turns, which it did last fall. Retiring Mayor Michael Bloomberg was succeeded by William De Blasio; and Comptroller John Liu, the independently-elected custodian of the city's pension funds, was replaced by Scott Stringer. Mr. Stringer beat back a last-minute primary challenge from disgraced ...


One Ordinary Week in the Life of Climate Change


We thought it would be instructive to share with you links and the odd quote from recent press reports on the subject of climate change.  As a professional investor,  you no doubt want to be ahead of trends in the investment world.   Investment opportunities arise when there is a divergence of opinion, as is uniquely the case in the United States (unlike the other nations on Earth) on the subject of climate change.  The headlines of a few days tell ...

Guest Posts


The Skorina Report: Another try at herding Gotham’s five-headed fund
Guest columnist Charles Skorina looks at the five-headed NYC pension system with its new leader, Scott Evans.

By Charles Skorina In July, Scott Evans reported for duty as Chief Investment Officer in New York City's Bureau of Asset Management, where he'll manage $160 billion in employee pension funds. Traditionally the city's CIO is replaced when the political wheel turns, which it did last fall. Retiring Mayor Michael Bloomberg was succeeded by William De Blasio; and Comptroller John Liu, the independently-elected custodian of the city's pension funds, was replaced by Scott Stringer. Mr. Stringer beat back a last-minute primary challenge from disgraced ...


Hard metals

November Vote: Do the Swiss Believe in Gold?
The Swiss National Bank and the government oppose a pending referendum that would drastically change the country's policy on gold. But of course the anti-establishment nature of the petition is the whole point.

Early this month the price of gold dipped briefly below $1,200 an ounce. Since then it has risen, not all that dramatically but more-or-less steadily, and it is as I write above $1,240. The latest move may have a lot to do with the Swiss vote on gold scheduled for the end of November. Specifically, the people will vote on a question put forward by three members of parliament, and endorsed by the necessary 100,000 petitioners. A “yes” vote will mandate the repatriation of foreign-held gold owned by the Swiss National Bank; a ...

Insolvency

Detroit Bankruptcy: Foes Become Allies
The legal environment in The United States remains averse to the sort of bold-faced repudiation of debt that Detroit attempted in the matter of its so-called Certificates of Participation (COP). Fortunately on several fronts, Detroit has decided to repudiate the repudiation.

Detroit filed for bankruptcy court protection in July 2013. In December, challenges to its eligibility for such protection failed. The case, since then, has moved along at a rapid pace, at least by the usually-glacial standards for large complicated re-organizations. It has attracted, meanwhile, a large body of commentary and punditry, some of which I have reviewed in my personal blog. With AAA’s indulgence I’ll link interested readers there. What piques my interest again just now is the new agreement between the City and the largest hold-out counter-party, an agreement that will have ...

Best Practices

Asset Managers Need to Ride the Tides
Guest columnist Diane Harrison looks at the ebb and flow of money and what it means to portfolio construction.

By Diane Harrison While reading "Swimming to Antarctica," the autobiography of Lynne Cox, a a long-distance swimmer who successfully navigated some of the world’s most challenging deep sea passages utilizing nothing more than a standard swimsuit, goggles and lanolin oil, I learned about the gravitational effect of tides, which in turn sparked a connection to the market forces that often dictate the global market movements. The physics of tidal pulls present an interesting parallel to some of the market cycles the asset management world has found difficult to navigate over the ...

Timely Research

A Merchant/Academic’s Thoughts about Customizing Risk Models
When should customized risk models win out over the standard sort? According to two authors of a new report, there are seven factors, starting with the time horizon.

When does it make sense for an asset manager to customize its risk model? And why? There are, after all, a lot of off-the-shelf risk models. For many purposes they suffice, and in some cases they do better than suffice: they render customization an expensive net negative. That is one of the premises of a recent paper by Zura Kakushadze and Jim Kyung-Soo Liew, who say that pension funds for example “do not require customization but standardization.” Seven Factors The report, Custom v. Standardized Risk Models, quickly acknowledges that there also are circumstances in ...

Performance, Analytics & Metrics

Hedge Funds: Good Run for India, but Troubles in Brazil
India accounts for much of the positive showing of Asia ex-Japan in the hedge fund world YTD. That positive showing, in turn, may be attracting asset flow.

 The independent data provider Eurekahedge says in its most recent report that funds investing in India are still recording large gains. Specifically, such funds have enjoyed eight consecutive months of positive returns, and are now up 30.65% year to date. India’s equities have also had a very strong year 2014, up 25.79% through the first three quarters. To India’s east, stimulus measures by the People’s Republic have kept Chinese equities moving upward, but late in September Hong ...

Retail Investing

Liquidity Makers and Takers: A Nobel Prize
The latest Economics Award has drawn the attention of the world briefly to a body of work that has a number of points of interest for the alt-investment community.

The Nobel Prize in Economics, formally the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel,” went this year to Jean Tirole, a French economics professor at the Toulouse School of Economics, and the chairman of the board of the Institut d’Economie Industrielle(IDEI). One somewhat unusual fact about this award: Tirole doesn’t have to share the glory or the money with anyone. In recent years, most of the economics awards have been shared among ...

Indexes

The Bubble This Time: Oil & Gas Energy Stocks?
If we look for the recent peak in Dow Jones U.S. oil & gas stocks we’ll look to the start of the summer. In June of this year the energy sector got above $850. The fall from that height puts the size of our correction in the neighborhood of 16%. It is possible these stocks are leading the rest of the market down.

Is there a bubble in oil and gas stock prices? And is it now bursting? Those are pertinent questions in the face of the leading role the energy sector played through the first full week of October in the slide of the key U.S. stock indexes. For perspective, we might remind ourselves that this doesn’t look at all like September 2008. One the other hand, the more worrisome hand, it might remind some people of the later part ...

Technology

Untangling the web of HFT
What is the real issue behind intermarket sweep orders, and the recent dust-up over an NYSE rules change? Faille answers: Privilege.

In the words of Sir Walter Scott, “Oh, what a tangled web we weave, when first we practice to deceive.” A key notion, one which it might even be fair to call a “deception,” underlying much of the regulation of the technical side of securities trading in the 21st century is the idea that regulators want to “level the playing field.” The expression, meaning nothing beyond the fragility of metaphor, may sound like it means an ...