Comments on: A quarter vs. three nickels and a dime… http://allaboutalpha.com/blog/2007/05/13/a-quarter-vs-three-nickels-and-a-dime/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Thu, 18 Mar 2010 13:53:53 +0000 http://wordpress.org/?v=abc hourly 1 By: Walt French http://allaboutalpha.com/blog/2007/05/13/a-quarter-vs-three-nickels-and-a-dime/comment-page-1/#comment-67672 Walt French Wed, 02 Jan 2008 16:15:31 +0000 http://allaboutalpha.com/blog/2007/05/13/a-quarter-vs-three-nickels-and-a-dime/#comment-67672 Unlike at 1st Citiwide, when you buy alpha you don't get shiny coins: you get a piece of paper good for whatever the bank deems it to be worth in 90 days -- maybe, they'll give you some beta coins, maybe regret that in fact, the alpha portfolio went down by half. The whole game has been to find alpha and most investors have entirely inadequate tools to evaluate the quality of managers' approaches. However, if there are huge uncertainties about whether a given manager will add value, at least you can be sure that the costs will be pretty much in line with the contracted amount, and you should negotiate those to be reasonable given your beliefs about their alphas and other quality factors. Finally, the point is interesting: if only say, 100 managers offer 130/30 investing strategies, and you run a 130/30 search, you're limiting your investment options the same way as the long-only managers are said to be limited in their expression of alphas. Hoisting on one's own petard. Unlike at 1st Citiwide, when you buy alpha you don’t get shiny coins: you get a piece of paper good for whatever the bank deems it to be worth in 90 days — maybe, they’ll give you some beta coins, maybe regret that in fact, the alpha portfolio went down by half.

The whole game has been to find alpha and most investors have entirely inadequate tools to evaluate the quality of managers’ approaches. However, if there are huge uncertainties about whether a given manager will add value, at least you can be sure that the costs will be pretty much in line with the contracted amount, and you should negotiate those to be reasonable given your beliefs about their alphas and other quality factors.

Finally, the point is interesting: if only say, 100 managers offer 130/30 investing strategies, and you run a 130/30 search, you’re limiting your investment options the same way as the long-only managers are said to be limited in their expression of alphas. Hoisting on one’s own petard.

]]> By: Monday links: currency competition « Abnormal Returns http://allaboutalpha.com/blog/2007/05/13/a-quarter-vs-three-nickels-and-a-dime/comment-page-1/#comment-6086 Monday links: currency competition « Abnormal Returns Mon, 14 May 2007 16:26:24 +0000 http://allaboutalpha.com/blog/2007/05/13/a-quarter-vs-three-nickels-and-a-dime/#comment-6086 [...] We are suckers for any post that cites the “First Citiwide Change Bank” SNL skits. (via All About Alpha) [...] [...] We are suckers for any post that cites the “First Citiwide Change Bank” SNL skits. (via All About Alpha) [...]

]]>