Emanuel Derman, the 2006 recipient of the Wilmott Award for Contributions to Quantitative Finance, and a former subatomic-particle physicist, has written Models.Behaving.Badly. The book was published last month by Free Press. No, the period at the end of each of the three words is no typo; it is the title.
Derman anticipated the gist of this 240 page book in a very brief entry in his blog on January 1, 2009. At that time, there was a good deal of controversy over the Black-Scholes model for options pricing. Nassim Nicholas Taleb in particular was attributing the financial crisis to what he saw as the fallacious view of financial risk and proper risk management of which this model was an important part.
On December 30, 2008, The Economist’s website ran a piece on Black-Scholes, arguing that it had been a “force for good” in the world, helping to create a new type of financial market 30 years ago that in turn had brought “millions of people” in the developing world out of poverty.
Derman, in his blog entry two days later, said that there are two axioms one has to keep in mind about models. First: all models sweep dirt under the rug. Second, the good models are those that make explicit the dirt that they sweep there. Accordingly, he said, Black-Scholes is a good model. “[Y]ou know what you are taking for granted when you use the model, and you know what has been swept out of view.”
Analogies and Metaphors
In Models.Behaving.Badly Derman returns to the nature of Black-Scholes, noting by way of analogy that if you want to sell homemade batteries you will have to determine an asking price. If there are no liquid markets for batteries, how would you go about this? Perhaps you would start with the raw materials, the cost of lead, casting, labor, sulfuric acid, and Bakelite. The Black-Scholes model treats a stock option as something manufactured – it works from the premise that by borrowing money and buying shares of the underlying stock you could replicate the payoff of a given stock option contract. Then it treats the value of the option as the total cost of this manufacturing process.
Black-Scholes, he writes, “is an ingeniously clever mental model of a complex system” that for pragmatic reasons has to reduce the intricacy of the actual world, making itself a metaphor for real-life options trading.
In general, this is what models are, “metaphors that compare the object of their attention to something else that it resembles.” This makes them inherently different from theories, which stand on their own feet and describe the world as it is. Economics doesn’t have theories, at best it has models. Consider the word “liquidity,” which I used above and which figures in a lot of economic models. This is obviously a metaphor, and its non-literal character has consequences. In finance, Derman says, everybody “thinks he knows what liquidity means, yet no one has adequately defined and quantified it.”
Beyond theories and far beyond models there is intuition, which Derman describes in a rather Buddhist fashion as the identity of the knower and the known, the archer and the bow.
Derman on Alpha
On the central concern of this site, Derman reminds us that alpha refers to the amount by which a stock’s annual return exceeds the fair beta-inspired value suggested by the capital assert pricing model. But then, he asks, why isn’t alpha zero? Why, for example, did Apple (AAPL) wildly outperform the S&P 500 during the period between September 2009 and September 2010, when the S&P returned 11 percent, and AAPL was returning 55 percent? There are various kind answers one can provide, but the starker answer is that CAPM doesn’t work very well. Although modern physics is sometimes attributed to a particular falling apple, contemporary economics is still stumped by the rise of an AAPL.
CAPM is not worthless, though. It has introduced into vernacular language two metaphors, alpha and beta, so that “investors now ask themselves whether their manager is providing merely dumb beta or smart alpha. Alpha is worth paying a fee for … Beta should be cheap: anyone can whistle.” That’s a good question for investors to ask, so CAPM deserves some credit for it.
The lesson, in the end, is this: “When someone shows you an economic or financial model that involves mathematics, you should understand that, despite the confident appearance of the equations, what lies beneath is a substrate of great simplification and – only sometimes – great imagination, perhaps even intuition.” Even the best of models are in a sense toys, which is the meaning the word still has when we speak of a model airplane.
Like model airplanes, models in finance will now and then break down and cause havoc.
So we double-dog dare you to try and say the title of this piece three times fast! Much has been made about the need for investors big and small to look at non-traditional investments following the portfolio debacles of 2008 and 2009.
We caught up with Sona Blessing to discuss her views on the subject and her new book, “Alternative Alternatives, Risk, Returns and Investment Strategy”
AAA: What are alternative alternatives?
Blessing: My working definition for the book has been based on unconventional, non-traditional, non-main stream hedge fund investments and strategies whose risk profiles and return drivers are atypical, unique and or idiosyncratic in nature. Given that financial literature tends to define alternative investments as a negation to traditional assets or, in other words, if core asset classes include equities, bonds, real estate, commodities, currency, and if these are compounded by their respective derivatives, then alternative investments are the resulting permutations and combinations thereof – such as hedge funds, structured products, etc. If we were to take this thinking a step further, then ‘alternative alternatives’ could be considered a “negation” of alternative investments.
Source: Sona Blessing
AAA: Why alternative alternatives?
Blessing: The raison d’être for alternative alternatives and my hypothesis has been:
In theory, market risk (also referred to as systematic risk = or beta) can be isolated and measured. By default, a risk originating outside financial and capital markets (as in nature) should not be affected by it. Clearly, neither the biological growth of trees nor the occurrence of natural/ weather phenomenon are influenced by events playing out in financial and capital markets. Quite simply tress will continue to grow in volume and value provided they have adequate sunshine, water, air and the appropriate soil conditions. Natural catastrophes such as earthquakes will continue to strike without our ability to accurately time and or predict their occurrence. Potentially each of the above, if made investable can provide exposure to a specific, non-replicable, unique risk premia that could deliver returns.
Put differently, if the source of risk (inefficiency/ies – risk premia) rest(s) outside the domain of mainstream financial markets, then it should be insulated from the vagaries of the financial market – as it has nothing to do with this market. It is important to recognise that even though the source of risk resides outside the market, the risk is real, and if borne, so are the prospects of being compensated for it. Even so, an exposure to such risk is not immune to a performance pull-back, as its risk profile is different and its return drivers or triggers are idiosyncratic.
In practice and in the real world it is virtually impossible to get “exclusive” exposure to naturally occurring sources of risk. But exposure to such risk can be calibrated – and if taken on, offers access to a source of partially inhomogeneous return.
Similarly research I have undertaken reveals (affirmed by the occurrence of the credit and sovereign debt crisis) that select sources of idiosyncratic risk although not originating in nature; are equally capable of offering unique risk-return profiles, provided the risk transfer process has been structured “correctly.”
AAA: What are their peculiarities?
- Nonreplicable risk or risk that cannot be replicated easily.
For example, it is difficult to replicate the actual occurrence of a natural catastrophe such as an earthquake or the biological growth of a specific 25-year-old tree.
For instance in case of asset based lending strategies such as in trade finance, each loan is unique – for a specified purpose and period in time, and hence needs to be analysed, assessed and evaluated for its “risk”-return profile on an individual basis.
Their markets tend to be inefficient and are driven by factors such as, in the context of investing in collectables, who is looking for which painting, rare wine bottle? How much are they wiling to pay? Who is a distressed seller – is it a verified ”original”? How scare is it?
In the context of micro life settlements – longevity/mortality risk – each policy is unique or in the case of asset-based lending strategies, each loan needs to be evaluated and structured individually.
- Low-to-no correlation
As in the case of naturally occurring catastrophes, such as winds in Europe, and an earthquake occurrence in the U.S., Japan, etc.
AAA: How have these assets and strategies performed through the most recent financial crisis?
Blessing: A majority of these alternative alternative assets and strategies have continued to deliver ”characteristic”, in-line, positive performance irrespective of the credit crunch and the ensuing recessionary environment.
- Timberland has continued to grow increase in volume and value terms.
- Insurance linked strategies (life and non-life) have delivered a positive performance also for the year 2008, including those that partially suffered owing to the collapse of Lehman (counter-party risk exposure as Lehman was one of the custodians of the special purpose vehicle accounts).
- Loan-based lending strategies have even benefited from the enhanced rigidity in regulation applicable to banks and other formal money lending institutions.
- Collectables of historical significance have maintained or appreciated in value.
- Volatility trading strategies have, depending on the underlying traded, and selectively, delivered in-line performance.
- Behavioral finance conditioned funds – selectively – have also delivered in-line performance.
On occasions where there has been a performance setback, it has been largely owing to structural issues. Paradoxically, even though most of these strategies are ”stereotypically” perceived as being ”illiquid”, if needed to be exited they have proved to be remarkably stable and ”liquid”. In spite of this fact, it is important to be realistic about managing their liquidity.
Understanding fully an asset’s or the strategy’s source of risk (its origin), characteristics – peculiarities (including valuation methodology, illiquidity, uniqueness), return drivers, persistence, scalability, shortcomings, terms and conditions – systematically isolating them from the risk posed by the investable wrapper/investment vehicle (structural) – operational, legal, regulatory, tax, currency, manager, market risk, liquidity, etc. – is imperative.
Alternative alternatives’ underlying investible source of ”pure/core” risk has, and is capable of performing (positively), given its fairly high ”certainty of returns dimension.” These assets and strategies can offer ”real” diversification and provide a differentiated risk-reward profile.
Title: Digging for Disclosure: Tactics for Protecting Your Firm’s Assets from Swindlers, Scammers, and Imposters
Authors: Kenneth S. Springer, Joelle Scott
Publisher: Pearson Education, Inc.
Published: December 2010
From Publisher: The indispensable due diligence guide: how to protect yourself from corporate crime or fraud in any major investment, acquisition, merger, or deal! Top investigators reveal how to “think like a swindler”… uncover hidden assets and a borrower’s true finances… perform international or corporate background checks… gain powerful competitive intelligence… and more!
Title: The Endowment Model of Investing: Return, Risk, and Diversification
Authors: Martin L. Leibowitz, Anthony Bova, P. Brett Hammond
Publisher: Wiley Publishing
Published: April 2010
From Publisher: A cutting-edge look at the endowment model of investing. Many larger endowments and foundations have adopted a broadly diversified asset allocation strategy with only a small amount of traditional U.S. equities and bonds. This technique, known as the “endowment model of investing,” has demonstrated consistent long-term performance and attracted the attention of numerous institutional and individual investors.
With The Endowment Model of Investing Leibowitz, Bova, and Hammond take a closer look at the endowment model with customary research sophistication and attention to detail. Throughout the book, they examine how the model provides truly outstanding real returns, while keeping a close eye on the risks associated with this method of investing. Along the way, the authors offer practical advice on incorporating the endowment model into your own investment endeavors and reveal what it takes to make this method work in the real world.
- Details the growing debate about the endowment model of investing and discusses how to use it successfully
- Written by an authority on endowment investing and non-traditional asset allocation strategies
- Offers expert insights on understanding risk and return in non traditional asset allocation
If you want to gain a better grasp of one of the most successful forms of investing, then The Endowment Model of Investing is a book you need to read.
Title: Top Hedge Fund Investors: Stories, Strategies, and Advice
Authors: Cathleen Rittereiser and Lawrence Kochard
Publisher: Wiley Publishing
Published: July 2010
From Publisher: Throughout the financial crisis of 2008, many hedge funds suffered massive losses and were often blamed for the extreme market upheavals. In the wake f the crisis, hedge funds remain a source of fascination for the media, legislators, and investors, mostly due to misunderstanding. Historically portrayed as risky investment funds for the very wealthy run by swashbuckling traders, the truth is hedge funds are simply an investment vehicle designed to generate superior returns and reduce an investor’s overall portfolio risk.
Investors have good reasons to remain fascinated with hedge funds. Although many individual funds have underperformed or collapsed, hedge funds as a whole have provided solid returns while reducing risks. Savvy institutions have invested in hedge funds for many years and have made them a large and powerful force in the markets. Investing in hedge funds requires sophisticated knowledge, understanding, skill, access, and experience. Individuals and institutions, whether they are new to hedge funds or need to improve, can find those attributes in the stories of the successful hedge fund investors profiled in Hedge Fund Investors.
Hedge Fund Investors chronicles the challenges and rewards these investors face, in selecting hedge fund managers, managing risks, and constructing portfolios. In revealing conversations, leading hedge fund investors who place hundreds of billions of dollars in hedge funds, share their philosophies, strategies, and advice.
- Profiles a variety of different investors from the pioneers in hedge fund investing to managers for high net-worth individuals and fund of funds investors
- Discusses winners and losers in the recent market decline, problematic hedge fund strategies, and how these current events will change future strategies
- Provides lessons, insights, and advice beneficial to all hedge fund investors
Engaging and informative, Hedge Fund Investors will prove valuable to anyone involved in placing money with hedge funds, as well as hedge funds who seek to better understand their clients.
From Publisher: QFINANCE is a new authoritative, comprehensive and practical finance reference book. QFINANCE provides you with a powerful combination of over 2,000 pages of finance information and expertise from over 300 of the world’s leading finance experts. QFINANCE is the only finance reference book of its kind and includes:
• Over 280 insightful essays on best practice & thought leadership
• 300 step–by–step guides offering you practical problem solving solutions
• Calculations and Ratios Essential mathematical tools including how to calculate return on investment, return on shareholders equity, working etc
• Global analysis of 102 countries & 26 sectors
• Illuminating biographies of 50 key figures behind modern finance including Louis Bachelier, Paul Samuelson
• A comprehensive dictionary of 9000+ finance terms and over 2000 insightful quotations
• Click here for free pre-chapter preview: www.qfinance.com
Some of the key contributors include: Jim Rogers, Co-founder of the Quantum fund and author of the best-seller Investment Biker, Aswath Damodaran – Professor of Finance at the Stern School of Business at New York University, Sir Howard Davies – Director of the London School of Economics & Political Science, Frank Fabozzi – Professor of Finance at Yale School of Management, Fred Hu – Chairman of Greater China at Goldman Sachs, Mark Mobius – Joint Chairman of the World Bank and author of Mobius on Emerging Markets, Riccardo Rebonato – Global Head of the Quantitative Research Team at RBS…. Just to mention a few.
All in one book!
From Publisher: Chronicling the rise and fall of the efficient market theory and the century-long making of the modern financial industry, Justin Fox’s The Myth of the Rational Market is as much an intellectual whodunit as a cultural history of the perils and possibilities of risk. The book brings to life the people and ideas that forged modern finance and investing, from the formative days of Wall Street through the Great Depression and into the financial calamity of today. It’s a tale that features professors who made and lost fortunes, battled fiercely over ideas, beat the house in blackjack, wrote bestselling books, and played major roles on the world stage. It’s also a tale of Wall Street’s evolution, the power of the market to generate wealth and wreak havoc, and free market capitalism’s war with itself.
The efficient market hypothesis—long part of academic folklore but codified in the 1960s at the University of Chicago—has evolved into a powerful myth. It has been the maker and loser of fortunes, the driver of trillions of dollars, the inspiration for index funds and vast new derivatives markets, and the guidepost for thousands of careers. The theory holds that the market is always right, and that the decisions of millions of rational investors, all acting on information to outsmart one another, always provide the best judge of a stock’s value. That myth is crumbling.
Celebrated journalist and columnist Fox introduces a new wave of economists and scholars who no longer teach that investors are rational or that the markets are always right. Many of them now agree with Yale professor Robert Shiller that the efficient markets theory “represents one of the most remarkable errors in the history of economic thought.” Today the theory has given way to counterintuitive hypotheses about human behavior, psychological models of decision making, and the irrationality of the markets. Investors overreact, underreact, and make irrational decisions based on imperfect data. In his landmark treatment of the history of the world’s markets, Fox uncovers the new ideas that may come to drive the market in the century ahead.
From Publisher: Hedge funds are perhaps the hottest topic in finance today, but little material of substance to date has been written on the topic. Most books focus on how to set up a hedge fund and the basic strategies, while few to none focus on what matters most: generating and understanding investment performance. This book takes an exclusive look at the latter, including an analysis of the areas that are most likely to generate strong investment returns — namely, the emerging markets of Brazil, Russia, India and China. The book will be invaluable to not only financial professionals, but anyone interested in learning about hedge funds and their future.
The Heretics of Finance provides extraordinary insight into both the art of technical analysis and the character of the successful trader. Distinguished MIT professor Andrew W. Lo and researcher Jasmina Hasahodzic interviewed thirteen highly successful, award-winning market professionals who credit their substantial achievements to technical analysis. The result is the story of technical analysis in the words of the people who know it best; the lively and candid interviews with these gurus of technical analysis.
The first half of the book focuses on the technicians’ careers:
–How and why they learned technical analysis
–What market conditions increase their chances of making mistakes
–What their average workday is like
–To what extent trading controls their lives
–Whether they work on their own or with a team
–How their style of technical analysis is unique
The second half concentrates on technical analysis and addresses questions such as these:
–Did the lack of validation by academics ever cause you to doubt technical analysis?
–Can technical analysis be applied to other disciplines?
–How do you prove the validity of the method?
–How has computer software influenced the craft?
–What is the role of luck in technical analysis?
–Are there laws that underlie market action?
–What traits characterize a highly successful trader?
–How do you test patterns before you start using them with real money?
Ralph J. Acampora, Laszlo Birinyi, Walter Deemer, Paul Desmond, Gail Dudack, Robert J. Farrell, Ian McAvity, John Murphy, Robert Prechter, Linda Raschke, Alan R. Shaw, Anthony Tabell, Stan Weinstein
From Publisher: In Foundation and Endowment Investing, authors Lawrence Kochard and Cathleen Rittereiser offer you a detailed look at this fascinating world and the strategies used to achieve success within it. Filled with in-depth insights and expert advice, this reliable resource profiles twelve of the most accomplished Chief Investment Officers within today’s foundation and endowment community—chronicling their experiences, investment philosophies, and the challenges they face—and shares important lessons that can be used as you go about your own investment endeavors.
From Publisher: Serving as a handbook for replicating the returns of hedge funds at considerably lower cost, Alternative Beta Strategies and Hedge Fund Replication provides a unique focus on replication, explaining along the way the return sources of hedge funds, and their systematic risks, that make replication possible. It explains the background to the new discussion on hedge fund replication and how to derive the returns of many hedge fund strategies at much lower cost, it differentiates the various underlying approaches and explains how hedge fund replication can improve your own investment process into hedge funds.
From Publisher: Active 130/30 Extensions is the newest wave of disciplined investment strategies that involves asymmetric decision-making on long/short portfolio decisions, concentrated investment risk-taking in contrast to diversification, systematic portfolio risk management, and flexibility in portfolio design. This strategy is the building block for a number of 130/30 and 120/20 investment strategies offered to institutional and sophisticated high net worth individual investors who want to manage their portfolios actively and aggressively to outperform the market.
From Publisher: The hedge fund industry has grown dramatically over the last two decades, with more than eight thousand funds now controlling close to two trillion dollars. Originally intended for the wealthy, these private investments have now attracted a much broader following that includes pension funds and retail investors. Because hedge funds are largely unregulated and shrouded in secrecy, they have developed a mystique and allure that can beguile even the most experienced investor. In Hedge Funds, Andrew Lo–one of the world’s most respected financial economists–addresses the pressing need for a systematic framework for managing hedge fund investments. Arguing that hedge funds have very different risk and return characteristics than traditional investments, Lo constructs new tools for analyzing their dynamics, including measures of illiquidity exposure and performance smoothing, linear and nonlinear risk models that capture alternative betas, econometric models of hedge fund failure rates, and integrated investment processes for alternative investments. He concludes with a case study of quantitative equity strategies in August 2007, and presents a sobering outlook regarding the systemic risks posed by this industry.
From Publisher: While the interest in portable alpha has grown exponentially, few investors have a true appreciation for the risks and operational complexities associated with this investment application. By first mapping out the key components and evolution of portable alpha, this book aims to give investors a solid foundation in this discipline. From there, it ties in investment theory and asset allocation, then addresses the relevance and common misuse of the alpha and beta terms, inherent leverage, derivatives-based “beta,” and global sources of (portable) alpha and risk, including equity, bonds, and hedge fund strategies. Implementation is covered in a dedicated chapter, as is risk management and the increasingly interrelated topic of LDI. Overall, this reliable resource will allow investors, consultants, practitioners, and academics to gain a better understanding of the potential benefits, applications, costs, and risks associated with portable alpha implementation.
The phenomenon of portable alpha continues to go from strength to strength and is a hugely debated investment strategy in today’s financial world. This is why it has never been so important to keep up with the very latest portable alpha innovations, trends and debates that are changing on an ever-frequent basis. The Euromoney Portable Alpha Handbook will fulfil this mission on an annual basis, providing a round-up of the year’s most thought-provoking issues and looking towards the future of this exciting concept. Growing on the success of last year’s first edition, this edition continues to offer incisive perspectives from a carefully selected editorial board of excellence, each presenting their own take on portable alpha, including articles on an alternative route for active portfolio management, the challenges of portable alpha implementation, plus many more exclusive contributions.
From Publisher: Follow-up to Bernstein’s landmark work, Capital Ideas (1992), which described the breakthrough financial theories of a small group of academics, including Paul Samuelson, Harry Markowitz, Bill Sharpe, Jack Treynor, Eugene Fama, Robert C. Merton, Fischer Black, and Myron Scholes. Their pioneering insights laid the intellectual groundwork for many of the innovations, new products, and strategies that are revolutionizing today’s world of finance. Based on personal interviews with leading academics and pioneering investment practitioners, Capital Ideas Evolving demonstrates how these financial theories now shape the underlying structure of portfolio management and market behavior, sparking important innovations such as portable alpha and fresh insights into the risk/return trade-off.
From Publisher: Intended as a comprehensive reference for investors and fund and portfolio managers, Handbook of Hedge Funds combines new material with updated information from Francois-Serge L’habitant’s two other successful hedge fund books. This book features up-to-date regulatory and historical information, new case studies and trade examples, detailed analyses of investment strategies, discussions of hedge fund indices and databases, and tips on portfolio construction.
From Publisher: Enhance overall investment returns by using alternative investments as the centerpiece of a portfolio. Alternative investments–such as hedge funds, private equity, and real estate–are growing in both popularity and importance, with more than $1 trillion invested in them. Filled with cutting-edge material on the latest trends in the world of portfolio management, Active Alpha shows readers how to analyze the factors associated with Alpha across all alternative investments. The book then explores how today’s investment professional can build a balanced portfolio with the right mix of alternative and traditional assets and low risk exposure.
From Publisher: William Sharpe shows that investment professionals cannot make good portfolio choices unless they understand the determinants of asset prices. But until now asset-price analysis has largely been inaccessible to everyone except PhDs in financial economics. In this book, Sharpe changes that by setting out his state-of-the-art approach to asset pricing in a nonmathematical form that will be comprehensible to a broad range of investment professionals, including investment advisors, money managers, and financial analysts. Bridging the gap between the best financial theory and investment practice, Investors and Markets will help investment professionals make better portfolio choices by being smarter about asset prices.
From Publisher: In Asymmetric Returns, financial expert Alexander Ineichen elevates the critical discussion about alpha versus beta and absolute returns versus relative returns. He argues that controlling downside volatility is a key element in asset management if sustainable positive compounding of capital and financial survival are major objectives. Achieving sustainable positive absolute returns are the result of taking and managing risk wisely, that is, an active risk management process where risk is defined in absolute terms and changes in the market place are accounted for. The result of an active risk management process-when successful-is an asymmetric return profile, that is, more and higher returns on the upside and fewer and lower returns on the downside. Ineichen claims that achieving Asymmetric Returns is the future of active asset management.
From Publisher: Since the first edition of the Handbook of Alternative Assets was published, significant events—from the popping of the technology bubble and massive accounting scandals to recessions and bear markets—have shifted the financial landscape. These changes have provided author Mark J. P. Anson with an excellent opportunity to examine alternative assets during a different part of the economic cycle than previously observed in the first edition. Fully revised and updated to reflect today’s financial realities, the Handbook of Alternative Assets, Second Edition covers the five major classes of alternative assets—hedge funds, commodity and managed futures, private equity, credit derivatives, and corporate governance—and outlines the strategies you can use to efficiently incorporate these assets into any portfolio. Throughout the book, new chapters have been added, different data sources accessed, and new conclusions reached.
From Publisher: Tran gives readers the information they need to construct an efficient hedge fund portfolio based on their own level of knowledge. From evaluating hedge funds to picking the winners, Dr. Tran covers some of the most important issues related to this flexible investment vehicle. Evaluating Hedge Fund Performance takes the standard hedge fund book to a new level by detailing how to manage the risk of hedge funds and offering the best methods to evaluate and monitor hedge funds. With strategy based on interviews and data from experts in the field, this book is a must-read for any investor or manager who is investing in hedge funds.
From Publisher: Swensen offers incontrovertible evidence that the for-profit mutual-fund industry consistently fails the average investor. From excessive management fees to the frequent “churning” of portfolios, the relentless pursuit of profits by mutual-fund management companies harms individual clients. Perhaps most destructive of all are the hidden schemes that limit investor choice and reduce returns, including “pay-to-play” product-placement fees, stale-price trading scams, soft-dollar kickbacks, and 12b-1 distribution charges. Swensen’s solution? A contrarian investment alternative that promotes well-diversified, equity-oriented, “market-mimicking” portfolios that reward investors who exhibit the courage to stay the course. Swensen suggests implementing his nonconformist proposal with investor-friendly, not-for-profit investment companies such as Vanguard and TIAA-CREF. By avoiding actively managed funds and employing client-oriented mutual-fund managers, investors create the preconditions for investment success.
From Publisher: Presents cutting-edge research on hedge funds with broad coverage of investing, risk management and portfolio allocation and in-depth analysis on a variety of topics including VaR estimation, illiquidity and dynamic investment strategies. Explores important differences between approaches to hedge funds and standard investment choices. Gain a practical insight into the proper analytical tools for evaluating hedge fund investments in order to reach better decisions both in managing the risk of these investments and in allocating the risk among alternatives.