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Short positions throwing a wrench in the works for traditional (long-only) institutional investors17 July 2008
We stumbled across this article by BNY Mellon’s fund administration arm that reveals some of this complexity. The paper argues in favour of a holistic approach to portfolio risk analytics - an approach not always followed by institutional investors according to the firm:
In essence, BNY Mellon is following the recommendations of Bruce Jacobs and Kenneth Levy who said in this article and others that you shouldn’t analyze a long/short portfolio as separate long and short portfolios since a combined portfolio will always be more optimal (i.e. have a higher risk/reward ratio). The authors of this article use a simple example they call the “Russell 2000 Argument” to illustrate the analytics of the same idea. They compare two rudimentary portfolios - one long the Russell 1000 and one long the Russell 3000 and short the Russell 2000 (stocks 1001-3000 of the R3000). While both funds are essentially identical from an exposure standpoint, they differ on several common measures, namely:
While this may seem kind of obvious using this simple example, you can see how these same issues can throw a hedge fund administrator or risk manager into a tizzy when things become more complex. The paper goes through a fictitious example of a market neutral fund to show how exposure figures can get wildly out of whack when the net exposure of the fund shrinks to zero (as in a market neutral fund). What was a modest negative exposure to tech and healthcare, in the example below, becomes gargantuan when compared to the funds puny net exposure.  To combat this deficiency in traditional analytical techniques, BNY Mellon essentially recommends that net exposures be calculated on a sector basis and by beta- and market cap-weighting the holdings (collectively falling under the name of “tilt” approaches). But the deficiencies in traditional fund analytics don’t end there. The traditional approach to calculating portfolio liquidity (”days trading volume held”) uses a net exposure denominator. Again, this could be a very small number for a market neutral fund - making the fund look wildly illiquid. Instead, BNY Mellon recommends that the denominator be gross exposure, not net exposure. While these issues are second nature for hedge funds themselves, they illustrate some of the challenges being faced by traditional long-only managers as they start to add on short positions in 1X0/X0 funds.
Comments »The Road Ahead for Hedge Funds: Pot holes or sink holes?16 July 2008
In fact, Morningstar’s own press release yesterday observed:
The Morningstar release goes on reveal that performance chasing is alive and well in Hedgistan. While we have reported extensively about the flow of assets from smaller hedge funds to larger hedge funds, Morningstar’s data shows that money is also flowing quickly from stinky funds to ones that have maintained their bouquet through the credit crunch:
It’s against this rather depressing backdrop that the McKinsey Global Institute released its annual report yesterday on “The New Power Brokers” (that’s SWFs, hedge funds and PE funds, in case you’re not one of them). The subtitle of the report “…Gaining Clout in Turbulent Times” seems to suggest that hedge funds may have simply hit a bump on the road. Here’s a side-view of that pot hole…
The chart on the right is more important than most hedge fund asset figures you hear quoted each month because it shows asset flows (ignoring the effect of positive or negative returns). Thus, it captures investor appetite for hedge funds. While appetite and returns are obviously correlated in the long run, they can run counter to one another in the short term. For example, Q1 returns were negative, but new asset inflows shored up the loss and led to a slight increase in AUM. Still, as Morningstar says, hedge funds have been performing relatively well compared to long-only funds. In McKinsey’s own words: “Nearly every hedge fund strategy beat the S&P500 between March 2007 and March 2008″.
Who knows if Q2’s relatively strong results for hedge funds will bring in new assets or whether the pot hole will turn into a sink hole. But it does suggest that hedge funds may offer the best detour around the obstructions ahead.
Comments »As markets fall, stock lending keeps on truckin’15 July 2008
In general, stocks are lent out on an ad hoc basis, allowing the lender (or more accurately, the lender’s agent, the prime broker) to set the “borrow fee” in a relative vacuum rather than letting the market dictate it. The resulting borrow fee is still loosely based on the supply and demand for the borrow. So if everyone wants to short a stock, then the demand will increase and the fee will rise. The possibility of a looming “shortage of shorts” has been bouncing around for some (see, for example, our posting “A Shortage of Shorts?” from November 2007). You’d think that a demand-driven increase in borrow fee would be accompanied by a commensurate drop in the price of the stock itself. After all, if everyone hates the company all of sudden shouldn’t the price fall? And as the price falls, shouldn’t some of the froth come out of the borrow demand (as marginal investors sense they have missed their chance to board the train)? Not so. We reported some data from Goldman Sachs last fall that suggested the smaller supply of Russell 2000 stocks had led to an increase in borrow fees during 2007. But many experts felt at that time that the huge supply of lendable large cap stocks would keep borrow costs under control. But now we’re starting to see evidence that even large cap borrows might actually be in short supply. The Independent reported yesterday that the average borrow fee for a blue-chip security has doubled in the past 10 months on both sides of the Atlantic. But it gets worse. The paper says the fee to borrow a mid-cap (FTSE 250) name has tripled during the same time period. How low will markets have to go to remove some of the enthusiasm for shorting (and with it, some of the froth from borrow demand)? That’s anyone’s guess. But for the time being, the pension funds and other long-term investors who lend out their stock are helping the prime brokerages shovel the cash into the truck. Addendum: While the Independent says there is “no market” for shorting, there are some emerging business models that may eventually bring some sanity to the borrow market. One is the recently-launched Lendex that allows lenders to side-step prime brokerages and list their lendable stocks themselves.
Comments »Making a negative call? Meet the new boss - same as the old boss.15 July 2008Sure, naked shorting and starting false rumours are socially undesirable. But isn’t there something a little ironic in the SEC’s clamp-down on negative opinions? Even the youngest junior analysts can remember a day not too long ago when the scarcity of any negative ratings was considered proof that research was actually just a lap-dog of the sell-side. Back then, with only one or two percent of analyst recommendations of the negative variety, the SEC wanted to see more “sell!” and less “buy!”. After peaking in 2003, sell ratings are still relatively rare - but they may become even rarer if the SEC starts to investigate people who don’t happen to love a particular stock. As Thomson reported today:
In May 2002, the SEC issued new rules to remove what it felt was a muzzle on analysts’ negative views. In the press release announcing its new rules, the commission said its goal was:
If the threat of being fired for issuing negative recommendations was conflict of interest, then what about the new threat of being thrown in jail for peddling negativity? Ironically, analysts now face another conflict of interest - keep your mouth shut about negative views or get investigated by the SEC. In an Orwellian twist, it seems that the SEC has pulled those muzzles out of storage and may be dusting them off right now.
Comments »New study says widely-used models “can be particularly misleading in performance evaluation”14 July 2008
But what if the underperformance of actively managed funds has been driven by their underlying strategy, not their stock-picking buffoonery? Beneath the complexity of their recent paper on benchmark indices, that’s the question posed by Martijn Cremers and Antti Petajisto of Yale and Eric Zitzewitz of Dartmouth. (You may recall the names Cremers and Petajisto from their paper on “active share” – a new metric to measure active management. See related posting.) The researchers found that academic models aimed at isolating manager skill by adding new variables to the CAPM (such as the Fama/French and Carhart models) are a “substantial weakness”. Instead, they propose using actual indices as variables in an equation to reveal manager skill. If this sounds familiar, it’s because William Sharpe himself actually used real-life indices in his seminal 1992 paper on Style Analysis. But as the authors of this report point out, most of the literature since has relied on more academic variables such as Fama and French’s “Small Minus Big (SMB)” market cap variable. Continues the paper:
So What? More than an esoteric academic debate, this has some pretty major implications on the way we analyse and rank mutual funds. In fact, it can completely reverse the conclusions drawn from traditional analysis techniques.
They find that the typical actively-managed fund may have underperformed due to its focus on small caps, not due to bad stock picking…
The bottom line, according to the authors:
In other words, according to this research, the performance of active management seems to depend on your perspective.
Comments »Alternative investing to be taken off endangered species list13 July 2008
Much as an animal is removed from the endangered species list when its numbers multiply, the report concludes that alternative investments may soon out-grow that moniker. Says the summary:
Notably, this year’s survey included questions on portable alpha and 130/30 strategies (appropriately, we might add, discussed in the same breath). What is probably most striking about these findings is that the popularity of alternative investments is pegged to grow over the next 3 years despite market mayhem (that has led to the worst first half for hedge funds since 1990). As the report points out, some of this increased demand is a result of market mayhem itself.
The report goes on to say that over 50% of respondents said they planned to increase hedge fund allocations in the next three years while only 7% said they would decrease allocations. About a quarter of respondents said they were currently using 130/30 strategies. That’s pretty high when compared to other recent surveys on the topic (see related posting). In the clearest sign yet of the ”next big thing”, JP Morgan places “green investing” on the chart (below) with portable alpha and its successor 130/30. (Note the number of respondents in this asset class is set to nearly double over the next 3 years) Who’s driving the green express? Public pension plans. Their reputation for more innovative strategies (such as portable alpha) seems to be conspiring with their slightly more social mandates to make this category of investors particularly predisposed to green investing.
Finally, on the topic of fees, the report observes:
This report is timely because it reminds us that, despite some inevitable performance-chasing, there are fundamental trends driving the move to alternative investments. So fundamental it seems, that alternatives may soon cease to be alternative at all.
Comments »Weekly Newsreel10 July 2008
Swedish funds hope rules to change soon: The Swedish public pension scheme lobbies its government to allow more access to alternative investments. As P&I observes, “Alternatives managers — particularly global players — should be in the best position to benefit from what consultants estimate will be billions of dollars up for grabs.” Don’t Pay Alpha Fees for Beta Performance: Advisor Perspectives gives us a sneak peak at a new article by previous AllAboutAlpha guest contributor Larry Siegel on various alpha-centric themes. This is a great discussion - particulary for financial advisors. Hedge funds hit troubled banks with a hiring binge: More on a topic in last week’s newsreel - the employee pillaging being conducted by hedge funds. Bigger may be better as smaller hedge funds give up: Says one industry player, “The costs of entry into the hedge fund industry have always been very low, but the costs of remaining in business are very high.” Fewer U.S. hedge fund starts so far this year: Reuters reports on Absolute Return magazine’s analysis of US hedge fund start-ups. UK asset management industry moves towards multi-boutique model: Gartmore isn’t the only asset manager wrapping itself in the “multi-boutique” flag. Aberdeen changes tack on hedge fund strategy: Another UK-based manager says “Hedge funds are going to be a long term game and not a short term win.” (ed: especially for Aberdeen, which is now a quarter-owned by hedge funds)
Comments »A Note on Hedge Fund Fees: the Best is Yet to Come9 July 2008Angelo Calvello has been around the alpha-centric investing world longer than almost anyone. In fact according to our research, he actually coined the term “alpha-centric” investing. In a guest posting today, he applies this thinking to hedge fund fees. And what he concludes will surely surprise many.
I recently attended a conference on 130/30 strategies. The discussion eventually and inevitably drifted to the well worn but poorly understood topic of hedge fund fees and more specifically the inevitable compression of those charges. It is a debate founded on the belief that hedge fund fees are simply too high, although it is not clear what yardstick is being used to support this conclusions. Hedge fund fees could be compared to those charged by traditional long-only managers, but this would assume that fees charged for ‘active’ long only management fairly represent the value added by these strategies. This, of course, is questionable.
Comments »Are hedge funds really “clinging to hope”?8 July 2008
Battered funds cling to hope of recovery (Financial News): “Hedge funds are struggling to shake off their worst quarter since records began…” Hedge fund investors want out sooner, not later (Reuters): “Worried about hedge funds’ low returns and high fees, more well-heeled investors are now talking about getting out of these loosely regulated portfolios than getting into them…” HNWIs cool on allocation to hedge funds (Hedge Funds Review): “Allocation to hedge funds from high net worth individuals (HNWIs) slipped to 9% in 2007 from 10% in 2006…” Tough Markets Alter HF Managers’ Practices (HedgeWorld): “Last year’s turbulent market environment prompted hedge fund managers around the world to lower leverage ratios and move a significant share of their assets into cash…” Investor Allocations to Hedge Funds Jump 28% (Financial News): “Institutional investors allocated $195 billion to hedge funds last year, a 28% increase over 2006 as institutional money continues to flow to fund managers despite a decline in performance…” Pension Assets in Alternatives up 40% (HedgeWorld): “Alternative assets managed on behalf of pension funds by the world’s 99 largest investment managers grew by 40%…” Hedge fund exodus fails to surface (IPE): “Even with falling returns, institutional investors are still happy to invest in hedge funds, according to research-based consultant Greenwich Associates…” High Growth Reported for the Hedge Funds in Europe 2008 (MarketWatch): A new report concludes “The European Hedge fund market is going through a period of exponential growth”
Comments »LDI: The Quest for “Del Boca Vista”7 July 2008The results from a survey were released last week on a topic that will either interest you or bore you tears – Liability-Driven Investing (LDI). We’ve covered this topic here at AllAboutAlpha.com because one of its constituent parts is often a hedge fund or portable alpha strategy. More on the survey below. But first, if you do all you can to avoid this topic; you might be well served to give it a second chance. Try looking at it this way… Pension Liabilities: Del Boca Vista
Let’s say you’re Seinfeld’s Frank Costanza (George’s father) and you’re saving for a glorious retirement at Del Boca Vista, a well-manicured retirement community in sunny Florida. It’s 1998 and you calculate that your annual savings plus a few good hedge fund investments will cover the costs of that dream condo (to be built some time in 2011).
Comments »Gartmore: Fish or Fowl?6 July 2008
As this recent FT piece illustrates, Gartmore, the UK-based traditional money manager, is also responding to the squeeze by slowly becoming a hedge fund firm as it faced pressures that lopped off half its assets earlier in the decade (FT chart, below). Reports the FT:
Comments »Newsreel: Hedge fund headhunting, M&A, and scapegoats3 July 2008
Asia to Create Thousands of Hedge Fund Jobs, Pinnacle Says: And it appears that some of those hedge fund recruiters are likely to be located in Asia. First Half 2008 Sets Record for Alternatives Manager M&A: Putnam Lovell predicts “In the next 12 months, we expect strong M&A activity involving battered banks and other financial institutions divesting asset management businesses to raise capital, and continued record demand for alternatives.” Feds Cast Scapegoat Net, Snag Cioffi and Tannin: Bloomberg’s Caroline Baum, author of the book “Just What I Said”, reiterates just what we said last week about the fundamental questions raised by the recent Bear Stearns indictments. Hedge-fund mystique: the need for transparency: The Australian reports that Morningstar VP of research says it’s time for hedge funds to come clean. US Presidential Election May Spur Hedge Fund Regulation: Then again, hedge funds may have no choice if this guy is right. Finding alpha with few bets: Seeking to avoid short-selling, institutions are looking to “concentrated” funds for long-only alpha. (ed: While not technically short-selling, a concentrated portfolio has a negative weighting vs. its benchmark in a huge number of names and a positive weighting in select others - raising interesting questions about whether a long/short fund is really that different.)
Comments »Researchers: If index funds are a commodity, why are their fees so divergent?2 July 2008
Although not directly examined by that particular paper, one category that makes no denials about its lack of active management is the S&P Index Mutual Fund category. These (almost) purely passive funds are the subject of another paper by the same authors available here. In “Institutional S&P 500 Index Mutual Funds as Financial Commodities: Fact or Fiction?” John Haslem, Kent Baker and David Smith examine whether index funds are really are all the same and whether they are truly “commodities”. They find a wide variation in the fees (and therefore the performance) of S&P index funds. This is counter-intuitive given their common Investment strategy, but even more counterintuitive when one considers that institutional investors should be less likely than retail investors to pay unwarranted fees.
Comments »Cap Intro: The new emphasis for prime brokers. But how much do funds care?1 July 2008
At around the same time, eFinancial News noted…
But a recent survey of hedge funds raises some questions about what really attracts and retains prime brokerage clients. AllAboutAlpha.com media partner FINalternatives just released the results of its 2008 prime brokerage survey. It concludes that the new focus on cap intro may not be generating a lot of fans:
Comments »Sweden’s AP7 pension fund reports on progress of alpha/beta retooling30 June 2008
A great example of an organization that realizes the holistic implications of alpha/beta separation is Sweden’s AP7, one of the country’s many so-called “buffer funds” designed to fund the retirements of its citizens. Regular readers may recall AP7 and its forward-thinking CIO Richard Grottheim. As we reported in January, AP7 has recently awarded what it calls “pure alpha briefs” that are essentially notional overlays applied to the fund’s passive portfolio. A few weeks ago, Grottheim and colleagues including one from the Stockholm School of Economics, revealed how AP7 is set up to undertake this kind of innovation in a new white paper. In this paper, Grottheim and friends propose an org. structure that they say shows “not only significant improvement in portfolio performance, but also a more transparent and cost efficient portfolio structure.”
Comments »Alternative Viewpoints: Commodities not about “buy and hold”29 June 2008With so much interest in commodities, we thought this might be a good time to revisit the rationale for so-called “managed futures” funds. But as Keith Black, CAIA, of consultant Ennis Knupp + Associates says, commodity investing is about a lot more than buying and holding commodities in hopes that the Chinese continue to buy new cars. The Case for Commodities
Over the last several years, institutional investors have more than doubled their allocation (to over $200 billion), to financial products whose returns are linked to those of commodity indices. Commodities may be attractive due to: the low correlation between their returns and those of other asset classes, the high correlation of commodities returns with unexpected inflation, and the rising demand for commodities from fast-growing emerging markets countries, such as China and India. In fact, when you look at the performance of these commodity indices during the best and worst quarters for the Wilshire 5000 (and quintiles in between), you can see that they have produced modestly positive returns in almost all quintiles. In fact, the correlation between commodity indices and other major asset classes is generally below 0.2.
Commodity Beta via Equities
Comments »Hedge fund seeding: “hot” or “not”?26 June 2008
But strangely absent from the line-up is hedge fund seeding. The strategy seems to run hot and cold and would surely have elicited some chippy debate. (okay, maybe not). At the beginning of this year, seeding was hot (see related posting). Then it was not (see related posting). And with the continuation of a difficult fundraising environment for hedge funds, seeding is hot again. In fact, it was in the news several times last week. eFinancial News reports on HFR data showing that new hedge fund launches are at their lowest level in 8 years. One reason, suggests eFinancial News…
Comments »Is the mutual fund industry competitive enough?25 June 2008
But price competition seems to have bypassed one particular fixed-cost business - the money management business. This, according to an article in the Journal of Investing that was made available for free recently. The paper by John Haslem of the University of Maryland, Kent Baker of the American University and David Smith of SUNY at Albany has the benign-sounding title “Identification and Performance of Equity Mutual Funds with High Management Fees and Expense Ratios”. But don’t be fooled. The authors rail against what they see as a lack of price competition in the US (and by extension the global-) mutual fund industry before examining the relationship between fees and performance. They even name names - highlighting the US mutual funds with the highest relative fees in the land. In their words:
Comments »Alpha Magazine’s New Hall of Fame24 June 2008
Thankfully, our good friends at Alpha Magazine have just launched their own hall of fame, appropriately called the “Alpha’s Hedge Fund Hall of Fame“. It will contain several great write-ups on hedge fund legends such as:
Comments »130/30 bull run still has some legs: S&P24 June 2008
Taking a page from Andrew Lo, co-author of the recent academic paper “130/30: The New Long-only“, S&P’s Srikant Dash told a London audience earlier this week that “Asset managers are moving into this area and eventually these funds will take a significant share from traditional active funds”. This year may not be a bust though. Referring to one particularly aggressive market estimate, another S&P official apparently said 2008 could also be shaping up to be a barn-burner:
According to Hedge Funds Review, S&P is launching two new 130/30 indices later this year. This, after an S&P-authored research paper recently argued that the best benchmark for 130/30 funds is probably a long-only index (see related posting, read report). Maybe that was a different “S&P” (?)
Comments »Virtual private equity a step closer to reality23 June 2008
Of course, you could always short comparable public equities (or even an index) against a long position in private equity. In fact, given the high correlation between private equity and public equity, that might not be a bad idea. There has been some research showing that a leveraged public equity position could actually trump private equity on a risk adjusted basis (see related posting). But insofar as private equity has its own return characteristics that are uncorrelated with public equity beta, it can’t truly be hedged. This may be changing soon. State Street is reportedly working on a “private equity replication” model that will complement its existing hedge fund replication model (see recent posting on that one). Eric Brandhorst, head of the research and structured products group at SSgA told Thomson last week:
Comments »Goldman’s new “A.R.T.” HF-Replication-Mutual-Fund22 June 2008
The nuts and bolts behind “ART” are a state secret, but the fund’s prospectus describes it this way:
Comments »A closer look at the CSX/TCI and Bear Stearns cases21 June 2008
Many of the facts surrounding each case have been obfuscated by sensational reporting. CNN’s Lou Dobb’s demanded, for example, that US legislators block the hostile take-over of CSX by London-based activist hedge fund TCI on national security grounds. Likewise, many mass media outlets seem to have bought into prosecutors’ arguments that the duo who ran Bear Stearns’ now infamous CDO fund were personally responsible for the entire global credit crunch.
Comments »Hedge funds starting to get “voted off the island”19 June 2008
Usually, the term “shakeout” refers to the culling of weaker, smaller players in an industry in favour of the larger and more dominant competitors. So it’s striking that Business Week this week suggests that the “parade of cave-ins” in Hedgistan included funds managed by major financial institutions (e.g. Citi, UBS, and parade-marshal Bear Stearns). The ones doing the culling? Pure play asset managers such as Bridgewater and BGI. In fairness, JP Morgan (which bought and subsequently grew Highbridge) and Goldman (which today announced its hide was saved in Q2 by its asset management business), buck the trend. But 8 of the top 10 largest hedge fund managers in Alpha magazine’s listing of the largest US hedge funds last month were NOT run by investment banks or other large financial services firms (we’d say that #9 BGI runs pretty independently of Barclays). So the question remains, what’s up with the bank-run hedge funds? Despite a rocky road for some bank-owned hedge funds, size continues to be an advantage. Reports BusinessWeek:
Comments »When it comes to hedge fund compensation, “social usefulness” is a red-herring18 June 2008
We proposed a number of hypotheses to explain this apparent double-standard. One was that traditional entrepreneurs created a product or service of tangible value. However, the value created by hedge fund managers (provision of liquidity etc.) is intangible at best. As a result, hedge fund managers are often accused of simply “re-arranging the chairs”, not building them. But a letter in last Thuraday’s New York Times by John Berlau of the Competitive Enterprise Institute reminded us how traditional entrepreneurs shouldn’t be given a free ride since they create something tangible. Berlau was responding to a June 10 Times Op-Ed (IHT reprint here) that said:
Comments »Non-market-cap indices dissed in Europe this week18 June 2008Rob Arnott, the outspoken proponent of “fundamental indexation” might want monitor what’s being said in Paris this week. Arnott is the owner of the patent for “non-cap-weighted indices” (see related posting). But IPE reports that Alain Dubois, the head of Lyxor Asset Management a SocGen subsidiary, told a conference audience:
Piling on was Tomas Franzen, head of AP2, one Sweden’s national pension funds who apparently added:
Arnott might not actually disagree with this assessment since he has often referred to fundamental indexation as simple common sense (see related posting). In either case, the value of his patents is probably doing just fine.
Comments »Lending stock to yourself: nifty idea, but effectively just active long-only management?17 June 2008
The firm (”Enhanced Index Products Company” or “EIP”) was the subject earlier this week of a Reuters article that said the firm “is looking to triple its assets through a rare marriage of passive and alternative investing, creating market tracking index funds it can use to source stock for complex trades.” Essentially, EIP uses its much larger index funds as a source for the stock borrow required by the relatively puny long/short fund - a strategy to short-selling that the firm says is “ideal solution for markets where hedge funds can’t easily or cheaply borrow stock they need for their often sophisticated trading strategies”.
Comments »French fries active management16 June 2008
Immediate benefits of active management Institutions have increased their allocatio | |||||||||||||||||||||||||||||||||||||||||||||
The addition of short positions to traditional long-only portfolios adds a whole new dimension of complexity and requisite analytics. This was true for mutual funds (see 
As Dow Jones 
They say that the market for borrowing stocks (to execute short sales) is one of the last great inefficient corners of the financial industry - where participants can simply back their trucks up to the loading dock and use a pitch fork to shovel the cash inside. 
It seems to have become a financial axiom that actively managed mutual funds fail to justify their fees. Ergo, index funds are often proposed as the best way to lose the least amount of money. 
Last week, while JP Morgan CEO Jamie Dimon was busy 
Special to AllAboutAlpha.com by: Angelo A. Calvello, Ph.D. 
The list of stories below was lifted from the most recent edition of our “
Frank Costanza: Are you telling me there’s not one condo available in all of Del Boca Vista?
Last week, we told you about a paper that suggested price competition in the mutual fund industry was somewhat less than robust. Rather than lopping all mutual funds into one pot and comparing their fees, the authors of that report examined the fees of individual funds relative to their Morningstar category average. While not as ideal as examining the active management delivered by each fund, this approach loosely categorizes funds by their level of active management (e.g. the small cap growth category has a higher level of active management than the large cap value category).
Last fall, after a particularly busy period on the pro-am hedge fund conference circuit, we noted that prime broker salespeople seemed to all be updating their business card to include the title “cap intro”. Apparently, capital introduction (a.k.a. fund raising assistance) was seen as a great way to differentiate one’s self from the growing throngs of prime brokerages. 
With its (appropriate) focus on generating returns, the asset management industry tends not to spend inordinate amounts of time on introspection - on the way firms in the industry management and organize themselves. As management consults are fond of saying “form follows function”. That’s consulting-speak for “structure follows strategy”. 
Special to AllAboutAlpha.com by: Keith Black, CFA, CAIA, Associate, Ennis Knupp + Associates
A few years ago, before social networking was all the rage, a website called “
Industries dominated by fixed costs tend to experience a lot of price competition. You don’t have to look any further than the airline industry to find evidence of this economic axiom. In fact, price competition is often even more fierce in growth industries where price cuts are enabled by economies of scale. For example, the Model T Ford had a price tag of $850 when it was launched - blowing away most rivals priced in the $2000-$3000 range. Within a few years, the Model T MSRP was around $300 - illustrating to the world the new economics of scale.
The AllAboutAlpha.com “
Hedge Funds Review reports that S&P is telling clients that 130/30 is “
A lot has been written over the past few years about hedge fund/private equity “hybrids” where a so-called “side-pocket” is created to hold a particularly illiquid investment. But while these funds may indeed contain both asset classes, they are long and short in public equities and long-only in private equities. In other words, it is difficult to actually hedge private equity.
As we reported in our weekly newsreel on Monday, Goldman Sachs just launched 
Two recent court cases have captured the attention of hedge funds. One pits a corporate raider cum philanthropist (TCI) against the increasingly desperate management of a old-line 100,000-car railroad (CSX). The other accuses two average-Joe hedge fund managers as the ones who originally infected patient zero in the global credit pandemic (Bear Stearns’ High Grade Structured Credit Strategies Enhanced Leverage Fund or “BSHGSCSELF” for short)
As the hedge fund industry matures, assets are flowing disproportionately to the larger players in what some have called a “shakeout”. Taking a page from TV’s “Survivor”, investors are apparently starting to vote smaller players off the (Manhattan) island. 
After the release of Alpha Magazine’s rankings of the highest-paid hedge fund managers (e.g. 
Since May 2002, a Hong Kong based enhanced index fund manager has been essentially lending stock to itself to create short positions in its long/short equity fund. The result has been a portfolio architecture that one usually finds only at the largest, most sophisticated institutions.
In March,