Today's Post

    Responding to a Challenging Tweet about Front-Running What do I mean by "front run," asked a reader. I use the term for a range of situations in which one party trades on the basis of advance [non-public] information of another party's upcoming trade, Faille replies.

    After an earlier post of mine here about high-frequency traders and the Securities Information Processor, I received a tweet from @LiquidMkt. Actually, I received two. LiquidMkt, a blogger who believes that HF traders are on the receiving end of inaccurate charges,credits them with valuable work providing the markets with liquidity. The first of his tweets to me said, “Read your blog, but it leaves out some relevant info. Have you checked this out?” and then linked to this discussion of the legality of direct feeds. I have never contended that direct feeds are illegal, so I didn’t really know what to do with that. Another tweet soon came along, asking me, @ccfaille, “When u say #HFT front run the SIP, how do u mean? Front-running as it is commonly understood is a myth.” There followed another link to the same discussion of the legality of direct feeds. But let’s focus on the question. What do I mean by “front run”? I use the term as suggested by the metaphor of running-in-front. It refers ...

Featured Post

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 ...

China’s Oil Giant At Center Of Corruption Probe's Ky Krauthamer looks at corruption in China's oil industry.

By Ky Krauthamer Grins were on the faces of China National Petroleum executives this week as they celebrated a blockbuster 30-year deal for Russian gas. It was a good day for CNPC, the state-owned colossus at the center of China’s oil and gas webs and one of Eurasia’s biggest energy investors. For some, however, those grins could soon turn to grimaces, because the deal comes against a backdrop of a series of high profile corruption investigations by the state, and CNPC has ...

Guest Posts

The Skorina Report is Surfing the Age of Asset Management: Will the tide of global AUM lift all asset-management boats?
Charles Skorina looks at the future of CIOs and with rising AUM and sees a forecast calling for sunny and bright. Maybe it's finally time to break out the shades!

By Charles Skorina The future looks bright for investment-management professionals as global assets under management surge from the current estimated $87 trillion dollars to a projected $400 trillion in 2050. Andrew G. Haldane of the Bank of England recently declared that global assets under management presently stand at about $87 trillion and says they'll rise 15 percent to $100 trillion by 2020, just five years from now. Looking farther out, Mr. Haldane foresees global AUM quadrupling to $400 trillion by 2050, boosted by ...

Venture capital

Preqin on PE Distributions & Call-Ups in 2013
The 2013 performance of the private equity industry, given any of several metrics, was quite strong. Why? In part because the exit environment has been very good.

Capital distributions to private-equity investors reached a record level in2013, according to research by Preqin, the multi-national data and consulting firm. They reached $568 billion, compared to just two-thirds of that (that is, $381 billion) in 2012. Another of the metrics key to Preqin’s research is the relationship of cap distributions to cap calls – that is, money drawn upon by managers from investors’ commitments. Cap calls have exceeded cap disbursements for most of the years since the crisis of 2007-08. But in 2013 the cap disbursements figures was the larger, ...

Hedge Fund Industry Trends

Hedge Fund Branding Continues to Drive a Majority Of Asset Flows
Guest columnist Don Steinbrugge looks at why the same hedge fund firms consistently bring in the assets.

Since the market correction of 2008, a vast majority of hedge fund net asset flows have gone to a small minority of hedge funds with the strongest brands, marking a change from the pre-2008 environment. A brand is an investor’s perception of the overall quality of a hedge fund based on multiple evaluation factors that evolve over time. A high-quality brand takes a long time to develop, but once achieved, it significantly enhances a firm’s ability to raise capital and retain assets during a drawdown in performance. Branding is a critical ...


SIP and the Law of Unintended Consequences
Christopher Faille reviews the basic facts about SIP, the Securities Information Processor, and cites (with some incredulity) a new contention in some quarters that SIP isn't all that important because nobody really relies upon it.

A venerable economic [or sociological] principle goes by the name, “the law of unintended consequences.” In brief: the unintended consequences of an action regularly swamp those that are intended. The principle may be read into writings of centuries past, but its first explicit statement under something akin to the above name came about roughly 76 years ago. Robert K. Merton [the father of the Robert Merton whom one associates with Fischer Black and Myron Scholes] wrote “The Unintended Consequences of Social Action” in 1936. He invoked “active asceticism” as an example. ...


GFIA: June is ‘Listless’ for Many Asia Managers
For many fund managers working in Southeast Asia, and/or China, June 2014 was “listless,” with numbers that suggest a flat tire. The booms on the ASEAN bourses are concentrated where the fund managers aren’t, in “high beta cyclical sectors.”

GFIA’s latest Research Insights tells us that in the month of June, MSCI Asian Pacific ex Japan was up, 1.3%. Japan itself, meanwhile, experienced something of a stock price surge – Topix 1000 gained 5.3%, Nikkei 225, 3.9%. Japanese outperformers “included city and regional banks, consumer electronics and steel companies,” while the underperforming side of the market included telecomm, retail operations, and utilities. Given Japan’s upbeat numbers, the MSCI Asia Pacific [inc. Japan] finished up 2.8%. As the line for TSE Mothers on the above table indicates, small and mid-cap stocks in ...

Risk management

How Not to Nationalize the Clearinghouses
Let's not make clearinghouses too big to fail. Or if, through, Dodd-Frank, we already have, let's turn back and reconsider that decision. That's how not to end up bailing them out or nationalizing them in due course.

Everybody loves the idea of the central clearing of derivatives. It’s like motherhood, transparency, and honest dealing. The most widely touted take-away from the crisis of 2007-08 is that “central counter-parties strengthen the safety and integrity of financial markets,” as Eurex Clearing put it this summer. This contention raises an obvious question, as regular readers of this blog will recognize: Won’t the central clearing parties themselves at some point (probably not too far distant) come under ...

Hard metals

Markets Work: The Argument from Robert Bork’s Beard
Markets work. We are warranted in believing this because it has proven itself in human history and we have studied history. Centralized social planning fails. Now, having said all that, let's talk about the Fed.

I’ve sought to formulate a strong argument against something in which I firmly believe. [It was a response to a challenge, let’s leave out the details.] One of my foundational beliefs is: markets work. Closely tied in with this is: interference with markets fails. Responding Like a Healthy Trout I am a pragmatist in epistemology (a Jamesian pragmatist, to be precise), and one expression of this commitment is my view that markets are good because they work, that ...


Advancing the Infrastructure Investment Narrative
Intuitively, the problem with valuing the debt issued by an private SPE in an illiquid infrastructure project is this: the free cash flows of the SPE aren't easily observed. So how does one go about deriving their present value?

EDHEC Risk Institute has proposed a valuation and risk-management framework for illiquid infrastructure debt, a framework that it calls “academically robust yet operationally implementable.” This has been a long time coming. EDHEC’s research program on infrastructure financing goes back to 2012. Earlier this year, EDHEC’s Frédéric Blanc-Brude put out a position paper explaining that the development of benchmarks that will help investors understand their actual and possible infrastructure positions would offer critical support for “the infrastructure investment ...


Terwilliger’s Legal Troubles: Give Mark Cuban a Cigar
The great thing about short sellers has always been that -- if they're good -- it's because they have a keen nose that can smell a boiler room. If they are open about what they're doing, they can also serve as a valuable red light for others in connection with overblown enthusiasms. Don't be the bag holder.

Sharesleuth, a business-investigating website backed by billionaire Mark Cuban, is an experiment in the making of a legitimate profit from the exposure of not-so-legitimate profits. Cuban’s professed plan is to buy and sell stock, sometimes at least to short sell stock, based on disclosures that he knows in advance that Sharesleuth is about to make. This experiment has been underway for eight years now. Why am I discussing it today? We’ll come to that. Let’s begin at ...