02-26-10 © almagami

    Today's Post

    Eurex Clearing and DB Group: New Paper on CCPs If such institutions as the ECB keep rewarding indebtedness, then over time they get their way. They'll get a lot of deal making, even if it amounts to a frenzy. Then investors will demand funds that play to that frenzy.

    The Deutsche Börse Group and Eurex Clearing have together issued a white paper on “How central counter-parties strengthen the safety and integrity of financial markets.” The paper makes some now familiar arguments, though it makes them more thoroughly than is usually the case. Let’s work through them and learn what we can. In the Beginning The argument begins with the annus horribilis, 2008. There were three reasons why that year was so horrible, according to the authors of this paper: excessive risk taking, the interconnectedness of the market participants, and insufficient collateralization. The essential argument of the paper is that CCPs render unlikely a repeat performance, because CCPs serve as transparent and independent risk managers. The paper “also stresses the pre-requisites for CCPs to perform their important function,” such as the highest quality standards for their own operations and governance, as set out in EMIR. Regulatory Initiatives In the first chapter, the authors outline the regulatory initiatives that have made the world – and will continue to make the world – a place rather different from ...

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

Oilprice.com'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


China’s Oil Giant At Center Of Corruption Probe
Oilprice.com'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 ...


Performance, Analytics & Metrics

All Regional Mandates in Positive Territory YTD
The latest report from Eurekahedge mentions that though instability is "brewing again in the Middle East," things have settled down a bit in Eastern Europe. This report was written prior to the shoot down of a Malaysian jet over the Ukraine.

Global equity markets are doing well now and the hedge fund industry benefits. That’s the gist of the latest report from Eurekahedge, with its numbers for June 2014 and for the year through June. Central bank policies continue to support economic activity. In the U.S., the Federal Reserve’s commitment to keep interest rates low “for a considerable time” has taken the edge off its announcement of the end of bond purchases. Meanwhile, the European Central Bank has imposed negative interest rates on bank deposits, in what Eurekahedge calls “an unconventional move ...

Alpha Strategies

Alternative Investments: Why Do We Care
Jeff Malec, CAIA, looks at the role of alternative investments in the current market environment and why they are crucial to successful investing.,

By Jeff Malec, CAIA CEO, Founding Partner Attain Capital Management, LLC I’m a philosophy major, so I’ll begin by asking – what are we all doing here? Ignoring the existential answers to that question and focusing just on the investment world – we’re all here because we have a problem. The problem is – we’re most all “naturally long” stocks, meaning that even when we don’t have a direct investment in stocks and benefit from share prices rising; we have indirect exposure to the stock market via our jobs, the real estate ...

Derivatives

Winner Takes All, and Liquidity Takers Win
It does appear that speed is helpful in generating alpha. How is it helpful? Here there are two views, and the less HFT-friendly of these views has received some scholarly/empirical support.

A new report stresses the extent to which the world of high-frequency trading is winner-take-all. Three scholars behind “Risk and Return in High Frequency Trading” together address the questions: how do HFT firms make money? And, what is the nature of their competition with one another? They start with some numbers: the median HFT firm has an enviable annualized Sharpe ratio of 4.3 and a four-factor annualized alpha of 22.02%. The “four factors” involved in the calculation of four-factor alpha are: CAPM; market capitalization, book-to-market value, and momentum. These numbers indicate a very ...

Regulatory

AIFMD Depositary: Developing an operating model
Much has been said about international regulation and its chilling effect on funds. Guest columnists Shane Brett and Alan Meaney look at set-ups and solutions.

*By Shane Brett of Global Perspectives and Alan Meaney of Fund Recs Depositary Lite vs. Full Depositary The role of the depositary breaks down into three areas defined under Article 21(7), (8), and (9) of the Directive; the safekeeping of assets held in custody; monitoring of cash flows and an oversight role. Full Depositary Only EU AIFM managing EU AIF’s are subject to the full depositary regime (Article 21), whereby a single depositary is required to perform the three core depositary duties of safe keeping of assets, cash flow monitoring and oversight. Under this model, ...

Retail Investing

Deutsche Bank on Investor Demands Today
If such institutions as the ECB keep rewarding indebtedness, then over time they get their way. They'll get a lot of deal making, even if it amounts to a frenzy. Then investors will demand funds that play to that frenzy.

Demand produces its own supply. That is the contrary of Says Law, and it is the moral of Deutsche Bank’s new report on monthly hedge fund trends. Specifically, the demand for aggressive employment of money in a climate where central bankers keep stoking equities is producing a supply of new fund launches with related strategies. The two most popular alpha strategies in Europe are: event driven on the one hand and equity long/short on the other. ...

Performance, Analytics & Metrics

A Challenge to Bayesian Probability
The stakes, for mathematics, finance, and the overlap of the two, are pretty high. So my ears pricked up when I heard of a sweeping challenge to Bayesianism.

A surprising dust-up in the blogosphere in recent days concerns Thomas Bayes, and the distinctive branch of probability theory called “Bayesian” in his honor. This has everything to do with the search for alpha. After all, probability is a key element in asset valuation. Consider the question “what is the probability that there is a lot of crude oil beneath this piece of land?” The way we go about answering that question: indeed, the way we ...

Institutional Investing

Looking at the Future of World Wealth McKinsey-style
In Asia the high-net-worth population still consists largely of the first-generation wealthy. So: what are these Asian entrepreneurs looking for in their private banking services? That is one of the questions McKinsey considers.

McKinsey has published a Private Banking Survey, part of a series it initiated in 2002. The gist of this one is that growing pressure on private banks in the years to come “will continue to fuel industry consolidation,” as manifest in rising mergers and acquisition activity. On that thesis hangs a tour of the major private-banking world regions. McKinsey begins, then, with the following observations: The number of millionaires, McKinsey expects, will rise 30% by 2016, putting ...

Currencies

Volcker: ‘The Kind of Stuff You’re Being Taught’
Paul Volcker is obviously entitled to express his concerns when he senses that the well-educated young people of today are taking economics courses full of the wrong lessons: specifically, that they are unaware of just how nasty a dragon inflation was in the U.S. in the 1970s.

Before he goes down in history books as the man behind the “Volcker rule,” that is, behind the effort to banish speculative activity from investment banks, let us recall that Paul Volcker was a critical figure in the monetary history of the United States due to his eventful 8-year tenure as Chairman of the Federal Reserve (1979 – 1987). He was surely one of the good guys. We should also recall (Volcker surely does) that before ...