All entries by this author

Detroit Bankruptcy: Foes Become Allies

Oct 20th, 2014 | Filed under: Insolvency, Today's Post

The legal environment in The United States remains averse to the sort of bold-faced repudiation of debt that Detroit attempted in the matter of its so-called Certificates of Participation (COP). Fortunately on several fronts, Detroit has decided to repudiate the repudiation.


Liquidity Makers and Takers: A Nobel Prize

Oct 19th, 2014 | Filed under: Academic Research, Retail Investing, Today's Post

The latest Economics Award has drawn the attention of the world briefly to a body of work that has a number of points of interest for the alt-investment community.


The Bubble This Time: Oil & Gas Energy Stocks?

Oct 15th, 2014 | Filed under: Commodities, Energy, Indexes, Today's Post

If we look for the recent peak in Dow Jones U.S. oil & gas stocks we’ll look to the start of the summer. In June of this year the energy sector got above $850. The fall from that height puts the size of our correction in the neighborhood of 16%. It is possible these stocks are leading the rest of the market down.


A Merchant/Academic’s Thoughts about Customizing Risk Models

Oct 14th, 2014 | Filed under: Risk management, Timely Research, Today's Post

When should customized risk models win out over the standard sort? According to two authors of a new report, there are seven factors, starting with the time horizon.


Untangling the web of HFT

Oct 13th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

What is the real issue behind intermarket sweep orders, and the recent dust-up over an NYSE rules change? Faille answers: Privilege.


GFIA Ruminates on Academia and Practice

Oct 9th, 2014 | Filed under: Alpha Strategies, Emerging markets, Hedge Fund Strategies, Today's Post

GFIA shares some ruminations about the relationship between the abundant academic work on alternative investment and the insights of practitioners. Meanwhile, the Bank of Japan seems to be engaged in some ruminations of its own, and practitioners have to await the results.


Late September Bombshell from Judge Lamberth

Oct 8th, 2014 | Filed under: Alpha Hunters, Insolvency, Legislation/Court rulings, Today's Post

As the editorial page of the Wall Street Journal reminded us recently, investors sometimes gamble on politics. That is their right, but good capitalist hygiene is served when, once in a while, such a bet goes badly wrong.


Footnote 13: Barclays Did ‘Change the Number’

Oct 7th, 2014 | Filed under: Algorithmic and high-frequency trading, Institutional Investing, Regulatory, Today's Post

The most intriguing revelation in the exchange of briefs between the State of New York and Barclays appears in a humble footnote, where Barclays seems to concede that an employee was pressured to change an internalization number. But it was just the once....


Bitcoin Miners: The Hammer and the Butterfly

Oct 6th, 2014 | Filed under: Currencies, Digital currencies, Editor's Pick, Forex, Today's Post

In the matter of a merchant selling computers that are supposed to mine bitcoin, the FTC alleges that the merchant is a sham, simply using the language of the bitcoin world to find suckers. But the agency might have gotten a bit ahead of itself here.


Old-Line Oil and Coal are Techno and Exciting These Days

Oct 1st, 2014 | Filed under: Alternative energy, Alternative energy investing, Energy, Today's Post, Venture capital

Revolution is underway in the energy world. For investors, one of the most unexpected facts about this revolution is that it permeates precisely those portions of the energy sector long thought sleepy and conventional: the fossil fuels.


What hath CalPERS Wrought? And Why?

Sep 30th, 2014 | Filed under: Institutional Investing, Investment Management Fees, Today's Post

Should investors, especially institutional investors, push back (or push back harder than they have so far) against the fee structure preferred by those whom they pay to manage their money? And is the recent announcement from CalPERS such a push?


Key Alpha-Oriented Law Firms Merging

Sep 29th, 2014 | Filed under: Alpha Hunters, Private Equity, Today's Post

Yes, law firms that serve alpha hunters are consolidating. But don't take it personally, HF or PE managers. This isn't about you. It's about them. And it isn't necessarily a bad thing.


Celent Reports on Equity Crowdfunding

Sep 23rd, 2014 | Filed under: Crowdfunding, Retail Investing, Today's Post, Venture capital

A new report from Celent discusses the as-yet unimplemented Title III of the JOBS Act. Celent's Isabella Fonseca offers suggestions for how both wealth managers and tech providers might benefit.


Hong Kong Shariah-Compliant Launch Sells

Sep 22nd, 2014 | Filed under: Behavioral finance, Best Practices, Emerging markets, Today's Post

If I should declare that I will never eat duck, and then I simply re-name certain ducks “chickens” and eat them, then people who genuinely as a matter of principle refuse to eat duck may consider me a false friend. And those who have no objection to the eating of duck may think me a silly goose.


Exemptions and Pools: CFTC Harmonizes with the JOBS Act

Sep 17th, 2014 | Filed under: Commodities, Hedge Fund Regulation, Today's Post

Two rules within the CFTC rulebook that offer exemptions for certain CPOs from certain regulatory requirements mirrored the original pre-JOBS Act Reg D on the SEC side. But of course we are now in a post-JOBS Act world, and the CFTC staff has now acted, not through a rule change but by staff letter, to harmonize with its sister agency and with the JOBS Act mandate.


Is Liability Insurance an Estate Asset in Bankruptcy?

Sep 16th, 2014 | Filed under: Derivatives, Insolvency, Legislation/Court rulings, Today's Post

The Manhattan bankruptcy court has now granted individual defendants in the MF Global matter, including Jon Corzine, access to funds from their D&O insurance. But it wasn't easy for them to get here, and therein lies our moral.


Burr XII, Extreme Value, and a Fantasy

Sep 15th, 2014 | Filed under: Academic Research, Asset allocation, Risk management, Today's Post

The eight authors of a new study seek to add to “the existing literature of Bayesian VaR methods by … considering the … general class of Burr XII extreme value distributions “ and by estimating error bounds. After having a little fun we try to puzzle out what that means.


Custodians Helping Customers with Securities as Collateral

Sep 11th, 2014 | Filed under: Infrastructure, Insolvency, Risk management, Today's Post

How address issues of supply/demand imbalance in the world of collateral requirements? Custodians can do a good deal on behalf of their customers here, and are exploring just how much.


Vindicating Austrians: The New ESMA Warning on Risks

Sep 10th, 2014 | Filed under: Asset pricing, Risk management, Technology, Today's Post

In a new report, ESMA discovers that some investors may be guilty of "over-reliance on continued policy support." I gather that means that investors believe that central bankers and governments will play the role of Santa Claus indefinitely.


Betting on Vice Doesn’t Really Pan Out

Sep 9th, 2014 | Filed under: Alpha Strategies, Behavioral finance, CAPM / Alpha Theory, Social investing, Today's Post

Christopher Faille, inspired by Greg Richey, of California State University, San Bernardino, has a few words about socially irresponsible investing, that is, the creation of a portfolio built around destructive human vices.


Merger Arb: Getting Your Stick to Where the Puck Will Be

Sep 8th, 2014 | Filed under: Alpha Strategies, Legislation/Court rulings, Performance, Analytics & Metrics, Today's Post

Christopher Faille speaks to Matt Porzio, the VP of Strategy and Product Marketing at Intralinks, about the data behind Intralinks' DFI.


Judge Drain: Make That ‘Make Whole” Clause Explicit and Clear

Sep 7th, 2014 | Filed under: Alpha Strategies, Best Practices, Insolvency, Today's Post

Judge Drain didn't actually accept the Momentive plan, but it now seems likely he will accept some very similar plan in due course. What is key is that the objections that he found had unconvincing represented until then the conventional wisdom among much of the bar devoted to the service of event-driven litigators.


SEC Adopts Changes to Regulation AB: More Transparency

Sep 3rd, 2014 | Filed under: Derivatives, Regulatory, Today's Post

The SEC's new rules for asset backed securities require asset level disclosures both at the time of offering and later, on an ongoing basis. The disclosures are required to appear in a standardized XML format.


The Delusions a Boom Can Bring and the Perils of Chasing Hedge Fund Winners

Aug 28th, 2014 | Filed under: Alpha Hunters, Alpha Strategies, Institutional Investing, Portable Alpha & Alpha/Beta Separation, Risk management, Today's Post

For an investor allocating slots in its portfolio to hedge funds, the draw of recent outsized performance can be powerful. Thus, the temptation to chase winners. But two members of the Hedge Fund Strategies Group at Commonfund caution against it.


A Back-Handed Look at ‘Too Big to Fail’

Aug 27th, 2014 | Filed under: Alpha Hunters, Alpha Seekers, Currencies, Insolvency, Today's Post

The significance of the size of bank reserves and deposits as channels for the influence of QE upon macro-economic factors varies bank by bank. Monetary levers don't work on the really big rocks. A word on implications for the equity positions in those banks.


Clearing Obligation: ESMA Releases CP Comments

Aug 26th, 2014 | Filed under: Derivatives, Regulatory, Today's Post, UCITS

The clearing-for-everything parade continues. Christopher Faille reviews three representative comments among those just released by ESMA, elicited by its consultation paper on the new clearing obligation for interest-rate swaps.


BIS to US Fed: You’re Messing with the World

Aug 25th, 2014 | Filed under: Currencies, Emerging markets, Forex, Today's Post

There are several channels for spill-over effects, whereby the actions of the Federal Reserve and the ECB can have grave consequences around the world. Psychological consequence, in particular herding, is among them.


A Brief History of the Direct Borrowing Power of the U.S. Treasury

Aug 24th, 2014 | Filed under: Currencies, Insolvency, Today's Post

The Federal Reserve practice of the direct purchase of bonds from the U.S. treasury has a fascinating history. Though there have been no direct purchases since 1981, the idea surely is not forgotten. Is indirect purchasing simply a better way for the sovereign and central bankers to assist their cronies?


Death of the Dollar: Consequences Worldwide

Aug 21st, 2014 | Filed under: Alpha Strategies, Book review, Gold, Hard metals, Today's Post

Rickards' new book expands on some of the themes of his 2011 publication, Currency Wars. The new book is, specifically, about the end of a particular phase in the history of money, the reserve significance of the U.S. dollar.


Eurekahedge: Europe-Focused Managers Took Hits in July

Aug 20th, 2014 | Filed under: Emerging markets, Performance, Analytics & Metrics, Today's Post

Banco Espirito Santo, and its CEO Salgado, had emerged from an earlier round of crisis (way back in 2012) with a roseate smell. Their latest smell ... not so good.


Responding to a Challenging Tweet about Front-Running

Aug 19th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

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.


Preqin on PE Distributions & Call-Ups in 2013

Aug 18th, 2014 | Filed under: Alpha Hunters, Alpha Strategies, Private Equity, Today's Post, Venture capital

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.


How Not to Nationalize the Clearinghouses

Aug 17th, 2014 | Filed under: Derivatives, Insolvency, Risk management, Today's Post

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.


Markets Work: The Argument from Robert Bork’s Beard

Aug 13th, 2014 | Filed under: Currencies, Hard metals, Today's Post

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.


SIP and the Law of Unintended Consequences

Aug 12th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

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.


Advancing the Infrastructure Investment Narrative

Aug 11th, 2014 | Filed under: Alpha Strategies, Infrastructure, Insolvency, Today's Post

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?


GFIA: June is ‘Listless’ for Many Asia Managers

Aug 10th, 2014 | Filed under: Alpha Strategies, Hedge Fund Strategies, Indexes, Today's Post

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.”


Terwilliger’s Legal Troubles: Give Mark Cuban a Cigar

Aug 7th, 2014 | Filed under: Alpha Strategies, Media Coverage of Hedge Funds, Regulatory, Today's Post

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.


Herbalife’s Earnings and Ackman’s Timing: Part II

Aug 5th, 2014 | Filed under: Hedge Fund Strategies, Legislation/Court rulings, Today's Post

Herbalife (NYSE: HLF) may survive the tricky game it is playing. One critical point: even on the worst plausible reading of its behavior, Herbalife as a corporation or a stock isn't a chain letter. The products it offers its distributors and the public -- they are the chain letters. That's an important practical (though not a legal) distinction.


Herbalife’s Earnings and Ackman’s Timing: Part I

Aug 4th, 2014 | Filed under: Hedge Fund Strategies, Legislation/Court rulings, Today's Post

Herbalife (NYSE: HLF) is playing a tricky sort of game right now: outlast the high-profile short. If its underlying business model is sustainable it can win that game. It may also be able to win, or Ackman may lose, even if the model isn't sustainable, although in that case Ackman's odds are obviously better.


The Investment World Has Good News for Philanthropy

Aug 3rd, 2014 | Filed under: Alpha Hunters, Alpha Strategies, Endowments & Foundations, Institutional Investing, Today's Post

Private foundations have "regained solid financial footing" in terms of their investment returns over the last two years especially, after the shaky years that preceded. Their mission-related spending has accordingly increased.


What is Right & What is Wrong With the Sharpe Ratio?

Jul 30th, 2014 | Filed under: CAPM / Alpha Theory, Risk management, Today's Post

Despite what the title (Deflating the Sharpe Ratio) might cause a naïve observer to suspect, de Prado's recent presentation was more pro than con the ratio in question. Mend it, don't end it.


Eurex Clearing and DB Group: New Paper on CCPs

Jul 29th, 2014 | Filed under: Derivatives, Regulatory, Risk management, Today's Post

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.


All Regional Mandates in Positive Territory YTD

Jul 28th, 2014 | Filed under: Alpha Strategies, Emerging markets, Performance, Analytics & Metrics, Today's Post

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.


Deutsche Bank on Investor Demands Today

Jul 27th, 2014 | Filed under: Alpha Strategies, Institutional Investing, Retail Investing, Today's Post

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.


A Challenge to Bayesian Probability

Jul 23rd, 2014 | Filed under: CAPM / Alpha Theory, Performance, Analytics & Metrics, Today's Post

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.


Winner Takes All, and Liquidity Takers Win

Jul 22nd, 2014 | Filed under: Academic Research, Algorithmic and high-frequency trading, CAPM / Alpha Theory, Derivatives, Today's Post

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.


Looking at the Future of World Wealth McKinsey-style

Jul 21st, 2014 | Filed under: Emerging markets, Institutional Investing, Today's Post

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.


Volcker: ‘The Kind of Stuff You’re Being Taught’

Jul 17th, 2014 | Filed under: Asset pricing, Currencies, Today's Post

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.


Deal Activity: Beer and Obamacare Both Factor In

Jul 16th, 2014 | Filed under: Alpha Hunters, Private Equity, Technology, Today's Post

Intralinks’ report suggests that “a handful of fundamental and positive shifts” are at work in the recent uptick in M&A activity. On a behavioral note: corporate confidence is returning, and presumably confident managements are more likely to seek out acquisition targets than are nervous managements.