All Posts by cfaille

All entries by this author

Litigating in the Wake of Manning

Jul 26th, 2016 | Filed under: Equity Hedge Funds, Hedge Fund Strategies, Hedge Funds, Newly Added

The United States Supreme Court preserved a role for state courts in securities litigation in a case involving accusations of ‘naked shorting,’ Merrill Lynch v. Manning, a May 2016 decision. Although the case involved specific state law claims, it also prominently referenced the Securities and Exchange Commission’s Reg SHO inRead More


Herbalife and Ackman: A History 

Jul 24th, 2016 | Filed under: Equity Hedge Funds, Event-Driven Hedge Funds, Hedge Funds, Newly Added

On July 15, 2016, Herbalife Ltd and the Federal Trade Commission reached an agreement that settles the FTC’s complaint. The company has agreed to pay $200 million to compensate consumers who may have been deceived into a rose-colored view of their prospects selling the branded diet and personal care productsRead More


Volatility Spillover Effects: India, Korea, China

Jul 21st, 2016 | Filed under: Commodities, Currencies, Finance & Economics, Investing in Commodities, Newly Added, The Global Economy & Currencies

Last year, two scholars writing in the Journal of Alternative Investments looked at the volatility spillover effects in the Chinese stock index futures and spot markets.  The question for them was whether there is spillover from spot markets into futures markets and back. I propose to give you their answer,Read More


Taking the Alcohol Out of the Wine:  A Decarbonized Index

Jul 19th, 2016 | Filed under: Climate change, Newly Added, Other Topics in A.I., Socially responsible investing, SRI and Clean Energy

A recent publication in the Financial Analysts Journal presents a model by virtue of which long-term passive investors may hedge the risks associated with climate change and/or with climate change related public policies. One incidental feature of the article is the sense it provides of the difference between carbon-free indexesRead More


Crude Oil at Mid-Year: IEA Assessment

Jul 17th, 2016 | Filed under: Commodities, Commodities: Examples, Newly Added, oil

As this year began, crude oil prices were stuck at their lowest level in twelve years. The world seemed to be bulging with surplus of the stuff. In January, the International Energy Agency estimated that the excess of supply over demand through the first half of the year would beRead More


Private Capital Fundraising Slows: Green and Brown Valleys

Jul 14th, 2016 | Filed under: Farmland, Infrastructure, Natural Resources and Land, Newly Added, Operationally Intensive Real Assets, Other Topics in A.I., Real Assets, Real Estate, Real Estate Equity Investments

Preqin, the multinational data and consulting firm, has looked at the second quarter and found it was, for private capital fundraising  … slow. So was the quarter before it. Together they made up the first half of 2016, in which the funds closed in the world of private capital globallyRead More


ESG Issues: The Material and the Immaterial

Jul 12th, 2016 | Filed under: Allocating to A.I., Alternative energy, Benchmarking & Performance Attribution, Newly Added, Other Topics in A.I., Socially responsible investing, SRI and Clean Energy

Activists pressing for corporate change on environmental, social, and governance issues often focus on issues that are, from the point of view of firm valuation, immaterial. Three scholars associated with the Harvard Business School recently quantified the materiality versus immateriality of shareholder proposals on ESG topics and discussed some ofRead More


Infrastructure: Look at the Contracts–Not the Industry or the Index

Jul 10th, 2016 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Infrastructure, Newly Added, Operationally Intensive Real Assets, Real Assets

A new paper from EDHEC Infrastructure Institute decides that there is no such thing as a listed infrastructure asset class. What is the practical significance of that inference?  It means that for investors (individual or institutional) looking to diversify their portfolio properly, a dedicated index focused on a listed infrastructureRead More


6 Questions about Dead Hand Proxy Puts

Jul 7th, 2016 | Filed under: Equity Hedge Funds, Hedge Fund Strategies, Hedge Funds, Newly Added

Dead Hand Proxy Puts are a relatively recent innovation in corporate finance, one intended to fend off shareholder activism, whether fueled by interested hedge funds or otherwise. Here is a primer on the subject. What Is It? A DHPP is a provision that creditors include in loan contracts with corporations,Read More


Lyxor Quants Ask: What Exactly is a ‘Risk Factor’ Anyway?

Jul 6th, 2016 | Filed under: Allocating to A.I., Alpha & Beta, Finance & Economics, Financial Economics Theory, Newly Added, The A.I. Industry

Given the growing body of scholarly work over “risk factor” investing, especially the growing number of risks cited as factors, one has to wonder: what exactly is a “factor”?  In terms that admirers of Rodgers and Hammerstein will remember: is a feature of an investment a risk factor because it’sRead More


AIMA on the Consequences of Brexit: Three Scenarios

Jul 5th, 2016 | Filed under: Newly Added, Regulatory, Regulatory Environment, The A.I. Industry

Among the questions that have acquired a great deal of urgency in recent days is: what will Brexit mean for MiFiD? Or for MAD? Or for the CMU? Britain has always been a major voice in the creation of these systems and directives within the EU. Where will hedge fundRead More


Brexit and Hedge Fund Strategies

Jun 30th, 2016 | Filed under: Currencies, Equity Hedge Funds, Finance & Economics, Hedge Funds, Newly Added, Relative Value Hedge Funds, The Global Economy & Currencies

How well did hedge funds help their investors to hedge potential losses as a consequence of the markets’ immediate reaction to the Brexit vote in the United Kingdom? How well will they hedge the other uncertainties going forward? Thursday, June 23, the UK voted to leave the European Union. TheRead More


Eurekahedge: Distressed Debt Managers Led the Tables in May

Jun 28th, 2016 | Filed under: Equity Hedge Funds, Event-Driven Hedge Funds, Hedge Funds, Newly Added, Relative Value Hedge Funds

The latest report from Eurekahedge, in its tracking of the health of the hedge fund industry worldwide and month by month, indicates that hedge funds were up 0.40% in May. Reversals in commodity prices in the middle of the month, and weak equity performance in developing markets, both had anRead More


Lewis’ Heroes Get an Exchange for Their Speed Bump

Jun 26th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Equity Hedge Funds, Hedge Fund Strategies, Hedge Funds, Newly Added

On Friday, June 17, the Securities and Exchange Commission approved the promotion of IEX from an ATS to a proper exchange. Thereby it gave a new ending of sorts to Michael Lewis’ book, Flash Boys. One of the big issues for both proponents and opponents of IEX’ application to becomeRead More


New AIMA Guide: 7 Themes for Investor Relations Professionals

Jun 23rd, 2016 | Filed under: Alternative Investments in Context, Industry Size & Managers, Investor Relations, Newly Added, Sales & Marketing in the AI Industry, The A.I. Industry

In October 2015, a scholar at the University of Toronto wrote a paper on what he called the “paranoid style of investment lawyers and arbitrators,” bemoaning an increasingly shrill and belligerent tone in the investment world of late. If there is such paranoia, one probable contributor, and one possible consequenceRead More


Puerto Rico: The New Argentina?

Jun 21st, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Newly Added

Puerto Rico and various instrumentalities thereof may default on debt within days. If they do so, this will happen without the benefit of an applicable bankruptcy system or other legislated means of restructuring, without a referee if you will, unless Congress acts decisively within a matter of days, something thatRead More


Factor-Based Asset Allocation

Jun 19th, 2016 | Filed under: Allocating to A.I., Alpha & Beta, Asset allocation, Asset Allocation Models, Commodities, Investing in Commodities, Newly Added, Other Topics in A.I., Smart Beta

A paper by Xiaowei Kang and Daniel Ung, published in June 2014, remains timely because risk parity and related approaches remain the center of controversy and some confusion. The Kang & Ung paper looked at three approaches to risk factor based portfolio construction, studying specifically the practical aspects of theRead More


Canadian Universities and Interest Rate Swaps

Jun 16th, 2016 | Filed under: Allocating to A.I., Endowments & Foundations, Institutional Asset Management, Institutional Investing, Newly Added

Two scholars looked recently at the behavior of Canadian universities regarding the management of their interest rate risk. They found something peculiar. The universities are making an increased use of interest-rate swaps, apparently under the impression that they are hedging against risks. But they aren’t. Almost all the swaps enteredRead More


Centripetal versus Centrifugal Force: Fund Marketing in Europe

Jun 14th, 2016 | Filed under: Newly Added, Other Topics in A.I., Regulatory, Regulatory Environment, Sales & Marketing in the AI Industry, The A.I. Industry, UCITs

On June 2, 2016 the EC issued a consultation document of interest to the many alpha seekers who would like to market their funds in one or more of the countries of the Eurozone. In a sense, its interest is much broader than that, because it fits into a veryRead More


How Risk Management Resembles Meteorology: A White Paper

Jun 12th, 2016 | Filed under: Hedge Fund Operations and Risk Management, Newly Added, Risk management, Risk Management & Operations, Risk Management Strategies & Processes

A new white paper from Campbell & Co. discusses the negative skew that is often a characteristic of portfolio returns, and the ways in which trend following can achieve positive skew instead. The paper is effectively advertised by its title, “Taming of the Skew.” The authors begin with distinctions amongRead More


Long/Short Equity: NB Makes the Case

Jun 9th, 2016 | Filed under: Equity Hedge Funds, Hedge Fund Strategies, Hedge Funds, Liquid Alternative Investiments, Liquid Alts, Newly Added, Other Topics in A.I.

A new paper from Neuberger Berman, an employee owned private investment firm that’s been part of the New York scene since 1939, makes the case that long/short equity strategies are “worth consideration as part of an investor’s equity allocation and the overall investment mix.” The paper is written by JulianaRead More


Giving the Baron King of Lothbury his Due

Jun 7th, 2016 | Filed under: Business News, Finance & Economics, Insolvency, Newly Added, The Global Economy & Currencies

The Bank of England is not only the central bank of the United Kingdom, in continuous operation since 1694; it is the model upon which central banking worldwide has been created. The Mother Central Bank is what it is. Mervyn King, the chief economist of the Bank of England throughRead More


Somebody Has to Crunch These Numbers: Infrastructure Cash Flow

Jun 5th, 2016 | Filed under: Infrastructure, Newly Added, Operationally Intensive Real Assets, Real Assets

EDHEC Infrastructure Institute-Singapore recently released a paper on the cash flow dynamics of private infrastructure project debt. The gist of the paper is that investors’ ability to understand credit risk in private infrastructure debt turns on advanced statistical techniques. Or, in the authors’ words, “the nature of the data requiresRead More


The Case Against a Bearish Argument on Crude Oil

Jun 2nd, 2016 | Filed under: Commodities, Commodities: Examples, Newly Added, oil

  A recent Bloomberg story indicates that in a world  awash in cheap crude oil, traders are now storing the stuff at a loss, at sea, on board vessels in the Straits of Malacca. Further, they are going into debt so they can bear this loss. Citing Morgan Stanley analysts,Read More


Consequences of the Paris Climate Agreement

Jun 1st, 2016 | Filed under: Business News, Equity Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

In early December 2015, representatives of 196 parties met in Paris, France, to discuss climate change, and the necessary reduction of greenhouse gas emissions on a global basis.  The result, the “Paris Climate Agreement,” seeks to limit warming to just 2 degrees Celsius (3.6 Fahrenheit) above pre-industrial levels, through aRead More


Puerto Rico and Bankruptcy

May 30th, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

The bankruptcies of public bond-issuing entities, such as Orange County, Calif.; Jefferson County, Ala.; and the City of Detroit, Mich. are still rare events, but they exert a lot of influence, in part because they demonstrate the possibility of that which isn’t supposed to be possible. The sort of entityRead More


Investors ‘Misoverestimate’ ETFs and a Push Towards ESG

May 26th, 2016 | Filed under: Allocating to A.I., ETFs, Industry Size & Managers, Newly Added, Other Topics in A.I., Socially responsible investing, SRI and Clean Energy, The A.I. Industry

In a newly released report, Natixis Global Asset Management speaks to the quite positive views of passive investment vehicles and exchange traded funds that it finds in today’s marketplace.  Their report inspires the neologism “misoverestimate,” as a logical analog of a former U.S. president’s term, “misunder ….” A Natixis surveyRead More


A Review of the Commodity Index/Global Hunger Controversy

May 24th, 2016 | Filed under: CAPM / Alpha Theory, Commodities, Finance & Economics, Financial Economics Theory, Investing in Commodities, Newly Added

The consensus in market scholarship seems to be not only that “still waters run deep” but that deep waters run still. The greater the depth of volume in a commodity, the lesser the volatility of that commodity’s price. (This of course requires the usual “other things being equal” caveat.) ThisRead More


Tricky Times for Hedge Funds and a Lot of Negative YTD Performances

May 22nd, 2016 | Filed under: Benchmarking & Performance Attribution, Equity Hedge Funds, Fees, Hedge Fund Strategies, Hedge Funds, Indexes, Newly Added, Performance, Analytics & Metrics, Structure of the Hedge Funds Industry

A slim majority of hedge fund managers are in the red year to date, through April, according to the latest report from Eurekahedge. Specifically, 51.4% of managers have negative YTD performance. Over the same period in 2015, the analogous number was only 21.2%. That is a good indication of whatRead More


Platts Windows and Cash Settlements

May 19th, 2016 | Filed under: Commodities, Commodities: Examples, Newly Added, oil

The “Platts window,” a metaphorical structure named after the influential provider of benchmark price assessments in various energy markets, consists of the final few minutes of trading, the period in the operation of an exchange when an aggressive player can have a big effect on the closing price.  A recentRead More


Credit Derivatives in China: A 2014 Presentation Recalled

May 19th, 2016 | Filed under: Newly Added, Risk management, Risk Management Strategies & Processes

The People’s Bank of China launched two seemingly important products in 2010: the Credit Risk Mitigation Agreement and the Credit Risk Mitigation Warrant. I refer to them as “seemingly” important because they addressed a large issue in a vast economy, and did so in what seemed to many a commendablyRead More


The Alberta Approach to Benchmarking & Performance Attribution

May 18th, 2016 | Filed under: Allocating to A.I., Benchmarking & Performance Attribution, Industry Size & Managers, Newly Added, The A.I. Industry

The Alberta Management Investment Corp. began life in 2008, as a successor to a division of Alberta Finance. It became a crown corporation in order to better manage the allocation of assets for twenty-six pension funds and investment plans. Its leaders initiated a review and soon discovered that they hadRead More


Global Focus Capital: Market’s Inflationary Expectations Are Too Low

May 12th, 2016 | Filed under: Allocating to A.I., Benchmarking & Performance Attribution, Commodities, Currencies, Finance & Economics, Macroeconomics, Newly Added, The Global Economy & Currencies

Investors can get ahead of events by aligning their portfolios to “a world of lower expected capital market returns and higher forward volatility.” That, at any rate, is the upshot of a thoughtful analysis by Eric J. Wiegel of Global Focus Capital, a Boston based asset allocation advisor. Why doesRead More


Trust Isn’t Just a Nice Warm Feeling

May 10th, 2016 | Filed under: Behavioral finance, Finance & Economics, Financial Economics Theory, Newly Added

Ross Levine, professor of finance at the University of California, Berkeley, and two scholars from Hong Kong (Professors Chen Lin and Wensi Xie) have published a study of corporate resilience in the face of a banking crisis. Their paper addresses a problem inherent in the relationship between Wall Street andRead More


Escape to the Internet? Or Build Better Communities?

May 8th, 2016 | Filed under: Currencies, Digital currencies, Newly Added, Operations, Other Topics in A.I., Risk Management & Operations, Technology, The Global Economy & Currencies

Dissatisfaction with the fiat money issued by or on signals from central bankers will not go away. Talk of “printing press” money seems quaint, as when people of my generation still refer to a keyboard as a “typewriter.” Central banks and their servants (and their servers) around the world engage,Read More


Dry Bulk Shipping Recovery: Three Causes

May 5th, 2016 | Filed under: Commodities, Commodities: Examples, Equity Hedge Funds, Hard metals, Hedge Funds, Newly Added

The value of the equity of Star Bulk (SBLK) has risen since the start of the year from $0.616 to just above an even dollar per share.  This is part of a broader trend. The dry bulk shipping industry, long in free fall, may have found its bottom. This isRead More


The SEC: Still Fiddling with a 1940 Era Carburetor 

May 3rd, 2016 | Filed under: Alternative Mutual Funds, Liquid Alternative Investiments, Liquid Alts, Newly Added, Other Topics in A.I., Regulatory, Regulatory Environment, The A.I. Industry

Steven A. Keen of Perkins Coie has posted an insightful discussion of section 18 of the Investment Company Act of 1940, and of the pending proposed regulation under that mandate, Rule 18f-4, on one of that firm’s blogs, the Derivatives & Repo Report. Both that proposal and Keen’s observations areRead More


Brexit and Derivatives: Allen & Overy’s Views

May 1st, 2016 | Filed under: Due Diligence Process, Newly Added, Regulatory Environment, Risk Management & Operations, The A.I. Industry

A decision by the United Kingdom to leave the European Union could be a bad thing for the derivatives markets. But from a legal standpoint there isn’t a lot that can be done about it in advance, and the existing Master Agreement for derivatives needs no change. Those are theRead More


Risk Management & the Trouble with Capacity-Driven Decisions

Apr 28th, 2016 | Filed under: Commodities, Investing in Commodities, Newly Added, Risk management, Risk Management & Operations, Risk Management Strategies & Processes

A recent CAIA member contribution by Kathryn Kaminski, director of investment strategies at Campbell & Co., discusses the quantification of CTA risk management.  It is worth a look, not least because it amounts to a warning about how underperformance can result for the re-jiggering of allocation for capacity constraints. KaminskiRead More


Thoughts on the Valuation of Secured Assets of a Bankrupt Debtor

Apr 26th, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

How should one value the assets of a bankrupt entity, especially those that secure its debt instruments? That is obviously a key question in the world of distressed-debt investing.  A 2014 report from a commission of the American Bankruptcy Institute, and the continued controversy over that commission’s proposals, offers usRead More


March Improved, but 2016 Still Rains Red for Hedge Funds

Apr 24th, 2016 | Filed under: Allocating to A.I., Alpha & Beta, Benchmarking & Performance Attribution, Equity Hedge Funds, Hedge Fund Industry Trends, Hedge Fund Strategies, Hedge Funds, Newly Added

The latest report from Eurekahedge indicates that hedge funds worldwide gained in March, though by far less than the underlying markets gained during the same period. Specifically, the Eurekahedge Hedge Fund Index gained 1.33 percent over the month, while the MSCI World Index, representing those underlying markets, gained 5.47 percent.Read More


Infrastructure, Dividends and Path Dependence

Apr 21st, 2016 | Filed under: Infrastructure, Newly Added, Operationally Intensive Real Assets, Real Assets

A new paper from EDHEC Infrastructure Institute-Singapore argues that infrastructure firms represent a unique business model, one with lower revenue volatility, higher payouts, and substantially lower correlation with the business cycle than other firms. An “infrastructure firm” for purposes of this discussion is either a special purpose vehicle created inRead More


The Value of a Proxy Access Mandate: Part Two

Apr 19th, 2016 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Hedge Fund Industry Trends, Hedge Funds, Newly Added, Structure of the Hedge Funds Industry

This is the conclusion of a two-part series on the issue of the value of a proxy access mandate. In the first part we looked specifically at a study the CFA Institute made public two years ago, one that has of late received renewed attention. It relied upon four scholarlyRead More


The Value of a Proxy Access Mandate: Part One

Apr 17th, 2016 | Filed under: CAPM / Alpha Theory, Finance & Economics, Hedge Fund Industry Trends, Hedge Funds, Newly Added, Structure of the Hedge Funds Industry

This begins a two-part discussion of the issue of the value of a proxy access mandate. The question is an important one. It is prima facie wrong to create any new rule (whether it’s a corporate bylaw, a regulatory edict, an act of a legislature or anything else) unless thereRead More


An Edge that Everyone Else Has Figured Out Already

Apr 14th, 2016 | Filed under: Hedge Fund Industry Trends, Hedge Funds, Newly Added, Structure of the Hedge Funds Industry

Tiburon Capital Management has posted a paper about crowded trades and the resulting ‘avoid’ lists: that is, about those bright alpha-pursuant ideas that everybody else has figured out already, and that accordingly are bound to underperform. The paper (in its first footnote) tells an oft-told joke. It’ll be told againRead More


Data Exploitation for Asset Managers: A Survey and White Paper

Apr 12th, 2016 | Filed under: Hedge Funds, Newly Added, Risk Management Strategies & Processes, Structure of the Hedge Funds Industry

A new survey sponsored by Northern Trust suggests that asset managers need to capture more value from available data, and that in order to do so they need both a more flexible strategy and stronger leadership than many now have. The surveyors talked to more than 200 executives in insuranceRead More


The Impending Market Abuse Regulation (MAR) Mandates

Apr 10th, 2016 | Filed under: Newly Added, Regulatory, Regulatory Environment, The A.I. Industry

On July 3, 2016 the new Market Abuse Regulation comes into effect throughout Europe, pursuant to 2014 legislation. The member states have transposed the MAR into national law.  Stefan Hendrickx is the founder and executive Director of Ancoa, recently looked at the “race to the MAR deadline” from the point ofRead More


2016 Allocator Trends Report: Consensus and Dissension

Apr 7th, 2016 | Filed under: Commodities, Commodities, Investing in Commodities, Newly Added

Context Summits has published a detailed report on the views of those who allocate money into hedge funds. Almost everybody they talked to is in on the act. Ninety-six percent of investors expect to allocate to two or more hedge funds in 2016.  A majority (57%) were prepared to investRead More


Greek Debt: Back in the Headlines

Apr 4th, 2016 | Filed under: Business News, Finance & Economics, Insolvency, Newly Added, The Global Economy & Currencies

The issue of Greece’s insolvency had receded a bit from the headlines since the stormy days of last summer. Alpha-savvy readers will surely recall, though, that in July 2015, the Greek government and its European creditors reached a bailout agreement that required actions by the former, especially on pensions andRead More


Don’t Blame Bass for the Failure of Bear Stearns

Apr 3rd, 2016 | Filed under: Hedge Funds, Newly Added, Other Topics in A.I., Personalities in AI, The A.I. Industry, Who's Who

Prominent alpha seeker Kyle Bass is named in the March 29 Wall Street Journal with a headline and lead paragraph that suggest that he was the man who set in motion the avalanche that brought down Bear Stearns in the spring of 2008. The truth, as one discerns only fromRead More