Earlier today, a conference wrapped up in London featuring some of the big names in the hedge fund replication industry (Bill Fung & David Hsieh – see related news item from today, Lars Jaeger – see related posting, and William Shadwick – see related posting, and others).  In case you couldn’t make it to this powwow, you’re in luck.  We trained an uncommonly intelligent house fly (he prefers the name “Musca Domestica”) to take notes over the past two days and send them to us by a miniature fly-sized Blackberry.  What follows are the Blackberry ruminations of our ‘fly on the wall’ at the world’s leading alternative beta gabfest.

9:00 AM Monday, March 10: “Got in yesterday despite the bad weather back home and a 300 mph jet stream (which also cramped up my wings a little – had to get a wing massage – but don’t worry, I won’t expense that).  Nice Sunday afternoon in London though.  Saw a Goose and a Black Swan cavorting yesterday in the park across from Buckingham Palace.  Bad omen?  Daffodils are blooming here, but storm coming in to London today.  Miserable this morning.  Hopefully send something more interesting about replication shortly.”

10:23 AM: “Peter Norman from AP7 discussed their separation of alpha and beta (see related posting). They get beta for free given its low-cost. Then they pursue alpha through risk budgeting to managers and not through capital allocations.  Long positions are funded by short positions.  AP7 covers any temporary losses and allows managers to use their credit.  Risk allocation is done using a tracking error methodology carried over from their old long-only active management approach.  Going forward, contemplating moving to a VaR approach.”

More…