It seems that Patrick Byrne is interested in using a lawsuit filed in Canada in October 2011 as an opportunity for contesting the substantive merits, that is, providing evidence that the conspiracy exists as described and that Nazerali’s part in it was accurately portrayed in the various webpages of Deep Capture (called “chapters” for some reason). That may well prove healthy.

Godfrey Cadogan's formula, linking high-frequency trading, bubbles and crashes all into one formula of extreme simplicity (or "parsimony" as Cadogan puts it) leaves our reporter wondering: does the rendering of facts as a formula make them clearer, or does it just create a misleading patina of precision? Emanuel Derman recently warned of the overly simple models of finance economists, and perhaps this is a new token of that type.

A recent study, in which Steve Kaplan of the University of Chicago collaborated with Bob Harris of the University of Virginia and Tim Jenkinson of Oxford, addressed fund-level performance using data from Burgiss Group. Kaplan said this study indicates that “private equity has performed remarkably well.” In the period 1990 to 2008, a dollar in PE returned to investors 300 to 400 basis points a year more than a dollar in the equities of the S&P 500, net of all fees. This, if accepted, still leaves the question of the relationship of PE funds/firms to one another. Are they all the same?

IMF economist Manmohan Singh, in a recent working paper for the IMF, makes a case that pledged collateral is a critical financial lubricant, and that since the collapse of Lehman in September 2008 there has been a significant and troubling decline in its supply. Certain measures intended by regulators to enhance financial stability may in fact undermine it, by worsening the supply/demand mismatch, in effect creating a grey market for this pledged collateral.

Celent says that both the IT world and the financial markets long assumed that the latter had to employ the former in a “batch mode.” A firm would process trades through the day, recording these in a data base. Then at the end of the day, programs that could manipulate this data in search of exploitable patterns would operate on the day’s results as a batch. That is the mode of operation that “has become increasingly obsolete.”

The Mathema report is full of cautions, and indeed adopts a quite generally gloomy tone. The markets, it tells us, don’t lend any credence to the political fixes that have been offered for the eurozone and especially for its peripheral players. If the fixes did have credibility, then the PIIGS’ 10-year government benchmark yields would have been falling significantly of late vis-à-vis the 10 year German Bund yield. But there has been no such fall.

If the actual results of the Korea Composite Stock Price Institute fitted a normal distribution (a "Bell curve,") then the index would record a daily loss larger than 3 percent only once every 1,219 years. In fact, it records such a loss once every 2.3 years. To fit the extraordinary real-world volatility of KOSPI and many other Asian markets, institutional investors especially should consider structured equity products that explicitly target a level of volatility.

At present, 21 percent of the world’s wealth belongs in the developed economies, but by 2020 that figure will have risen to 30 percent, according to a new report.

Distressed debt strategies have long been bedeviled by the shifting and thus unpredictable nature of the law of avoidance, or fraudulent conveyance, in the U.S. Perhaps it is, as some have said, because the law was written for a simpler time, and an industrial rather than a post-industrial country.

On Oct. 30, a Sunday, the Commodity Futures Trading Commission received a draft report from MF Global that for the first time showed a shortfall in the segregated funds, a deficit of $900 million. At this time, both MF Global and the CFTC were referring to this in anodyne terms as an “accounting error.”

Bandon Capital's managing directors believe it is possible to generate alpha from unique non-market sources, and that they do so through their forecasts of domestic and overseas sovereign interest rates.

A recent meeting of an advisory group of the CFTC discussed the proper definition for high frequency trading, on the premise that only once a definition is in place can there be focused monitoring of the consequences of HFT.

The European Debt crisis has been the epicenter of the most recent market earthquakes. Now that a resolution is on the table, the "What now?" question remains.

The Commodity Customer Coalition has now issued a white paper presenting its own view of the “background, impacts, and solutions to MF Global’s Demise.”

We near the third anniversary of the day (December 10, 2008) when the two sons of Bernard Lawrence Madoff informed authorities that their father had just admitted to them that his asset management operation was “one big lie.” One of those sons, Mark Madoff, killed himself one year and one day later. The dimensions of [...]

EisnerAmper LLP's latest edition of “Pulse of Private Equity” finds that PE firms in the second half of 2011 are becoming “more sober about the potential for transactions,” compared to last year or earlier this year.

Pragma studied the empirical relationship between the routing behavior of market participants and the fee structures of the venues through using publicly available trade and quantity (TAQ) data from June 2011....The hypothesis left standing is that the inverted fee structure acts as intended. "[W]hen there is a choice of where to take liquidity, the pecking order is clear and coincides with cost."

A new study from SEI shows If an alternative strategy can be offered in a mutual fund structure it has a much broader market opportunity than if not. Hedge fund managers want the mutual fund market just as mutual fund managers want to use the broader hedge fund range of strategies.

Could it be that truth is finally stranger than science fiction? The next battle of the quantitative trading strategies may offer some algorithmic features that look downright qualitative.

Amongst equity long-short funds, which constitute about half of the Asian hedge fund universe, the returns of hedge funds “were sometimes mean reverting but at other times displayed persistence in positive/negative momentum.” That is to say that sometimes a coin that has come up heads three times will come up tails the fourth time, but at other times it will persist in coming up heads the fourth time.

The hedge fund industry that invests in Asia is increasingly run from within the region, especially from the two hub cities of Hong Kong and Singapore, according to an August 2011 report by Singapore based consult In the early days of the Asian hedge fund industry, Asian strategies were quite generally run from outside of Asia [...]

The world is a fairly small pond in which ripples anywhere soon shake the surface everywhere. Such an observation, like the word “globalization,” has become a cliché, but the truth behind them both becomes quite obvious in the course of a new “Viewpoint” paper by Ernst & Young that examines fund distribution strategies in the [...]

Intuition (codified by many models) suggests that investors have to be bribed to accept risk, so that there ought to be a positive link for any given class of security between the amount of risk, and thus the measurement of volatility, on the one hand, and expected return on the other. A puzzle arises, then, from empirical research indicating that “idiosyncratic” volatility, that is, the volatility due to the characteristics of a specific security, is negatively correlated with return once one passes the mid-point of the range of volatility.

Spread capture is a percentage of the bid-ask spread, so that if an algorithm always accepts the outstanding offer when buying – if it is always the one to cross -- it will capture 0 percent of the spread. If a deal is concluded on its own bid determined through limit orders, on the other hand, it captures 100 percent of the spread. The spread capture metric is popular, the Pragma paper says, because it “reflects a widespread assumption that the higher the number the better the performance of the algorithm.”

Managers were asked: “other than delivering expected performance, what is the greatest challenge in satisfying investors?” The results were: getting investors comfortable with infrastructure, 22 percent; providing satisfactory performance attribution data, 19 percent; providing broader education/consulting, 18 percent; providing satisfactory risk analytics, 11 percent; other, 28 percent. The residual answer produced more favorable replies, then, than did any of the pre-scripted answers.

The classical philosopher Aristotle is often associated with the logical principle that every well-formed proposition is either true or false, either A or not-A.  Actually, Aristotle’s views were a bit more complicated than that. He raised the possibility for example that the truth of the statement “there will be a sea battle tomorrow” might be [...]

By Christopher Faille The ideas of “cause and effect” seem simple enough when left unexamined. The cue stick hits the cue ball; the cue ball hits the eight ball; the eight ball rolls into the pocket. How can anyone fail to understand this?

There is an old story often attributed to economist Burton Malkiel. A professor of finance and an undergraduate are walking together. They see what looks like a $100 bill lying on the sidewalk. The naïve student bends down to pick it up, but the professor says, “Don’t bother. If it were a real bill, it [...]

Cyril Demaria, a partner at Tiaré Investment Management in Zurich, and a former portfolio manager at Maaf Gestion, has written a book, Introduction to Private Equity, John Wiley & Sons Inc., Hoboken, N.J., 2010, 244 pp., $49.95. The subject matter is named well enough in the title. I’ll only add that Demaria uses the term “private [...]

By Christopher Faille Charles Jones of Columbia Business School made a presentation at an SIFR event in Stockholm, titled “What do we know about algorithmic and high-frequency trading?” Although a distinguished professor like Jones would not put the matter this way, his thoughts do have me thinking of the old human-inhabited trading floors, and their cyberspace [...]

The explosion of the subprime market may yet produce a significant change in the way investors and their managers with a distressed-assets strategy maneuver for advantage in the context of Chapter 11 proceedings

By Christopher Faille One of the great clichés used by reporters, commenters, bloggers and twitterers in recent months has been that the central bankers of the developed world, and/or their Treasuries, have “run out of bullets.” They have “spent all their ammunition” seeking stimulus already and will have nothing in reserve should there be another serious [...]

Alpha Hunters Andrew Timpson and Joseph Schlater of Busara Advisors talk about what it takes to get an emerging manager allocation.

By Christopher Faille A new report on hedge fund inflows indicates that the rate at which money is coming into the hedge fund industry reflects that industry’s improved performance, but that if these figures are segmented by strategy or geography, the different rates at which they are attracting money do not very accurately reflect their different [...]

The second in a three-part series on private equity from SEI shows that alpha is a bit slippery these days.

Clearing within ten days after the transaction (T+10) was once the norm, though it now seems archaic. Clearing overnight or in a once-a-day cycle will in the years ahead become equally unsatisfactory. It may soon “become standard practice for risk managers and eventually traders to demand proof that their trades have been cleared mere seconds after execution.”

By Christopher Faille Passive and active investments are often contrasted as if the distinction is self-evident. It isn’t. Even for an unambitious long-only equity indexed fund, trades have to be executed in order to maintain the desired balance, and these trades can be executed either well or poorly, in ways that help or hurt the investor. [...]

It is true by definition that the crowd is right in the midst of a trend, and wrong at the moment when that trend is about to reverse itself.  In the Asia Pacific region, broad confidence in opportunities for private equity surely constitutes by now, a trend, even a parade. Whether it is the sort [...]

International Monetary Fund research shows that speculation does not influence the commodities markets.

There will likely always be at least a simmering tension in the hedge fund industry between the managerial desire for discretion in the use of assets and every investor’s desire to have the option of withdrawing funds as needed. When a manager seeks to offer its investors more liquidity than its own portfolio can provide, [...]

Roughly half of the private equity limited partners questioned in a June 2011 survey said they plan to commit more capital to PE funds this year than they did last.

New research from the Managed Funds Association looks at the state of the pension fund industry and examines the role that hedge funds can play in order to improve institutional investors' positions.

In the search for the optimal level of automation, there is a vice of defect, a vice of excess, and a virtuous golden mean.

On Aug. 8, 2011, Chancellor Leo Strine of the Delaware Chancery Court issued in opinion in a dispute between a hedge fund seed investor and that hedge fund’s manager, Paige Capital Management LLC v. Lerner Capital Fund. His decision, working in part from the contract law precedents of New York, in part from equitable precedents [...]

The nature of funds of hedge funds, their scale and, more specifically, the added value they offer to their investors have all evolved over time, and will continue to evolve. In an interview, Brian W. Chung, senior vice president,senior portfolio manager for SSARIS Advisors, a Hedge Funds of Funds affiliate of State Street Global Advisors, spoke [...]