Today’s Post

Financing For Knights in Shining, or in Sooty, Armor

Jan 29th, 2015 | Filed under: Private Equity, Regulatory, Risk management, Today's Post

There are certain deals that banks don't want to touch with the longest lance in a joust. That doesn't mean the deals don't get done: it means they go by default to the non-bank financiers. We look at the divide.


Pension Funds as Alternative Investors Get Some Advice

Jan 28th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Asset allocation, Institutional Investing, Today's Post

As the CEO of AIMA, Jack Inglis, said: Many pension-fund trustees "are asking questions about their existing or prospective hedge fund allocations. Rarely has there been such demand for a realistic assessment of the benefits – and also the risks – associated with hedge fund investing.” The AIMA and CAIA are working together to meet that demand in a series of papers.


Who Is Yanis Varoufakis? And Does it Matter?

Jan 27th, 2015 | Filed under: Academic Research, Currencies, Today's Post

Varoufakis believes in the single Eurozone currency. It is unlikely that the government that just appointed him Finance Minister plans to pull out of that zone and bring back the drachma.


Prize to Sannikov: Scholar of Friction and Moral Hazard

Jan 26th, 2015 | Filed under: Academic Research, Alpha Hunters, Alpha Strategies, Today's Post

In a fascinating review article, Sannikov and his co-authors distinguished among the sorts of liquidity, and thus identified the precise sort of liquidity mismatch likely to lead to market shocks. In a working paper last year, Sannikov took on the issue of executive pay, incentives, and claw-backs.


Competing Bankruptcy Filings for Caesar’s: Third-Party Releases

Jan 25th, 2015 | Filed under: Insolvency, Legislation/Court rulings, Private Equity, Today's Post

A legal donnybrook has begun for control of Caesar's assets. An important side issue involves bankruptcy court treatment of non-debtors seeking release from alleged liabilities of their own, and a split amongst the appeals court circuits over such treatment.


How Bad is the Cash Drag on Open-End Private Equity Real Estate Funds?

Jan 22nd, 2015 | Filed under: Private Equity, Real Estate, Today's Post

Guest columnist Brad Case, Ph.D., CFA, CAIA, examines the effects of cash drag on open-end private equity funds.


Low Energy Prices: Crude and Refined Consequences

Jan 21st, 2015 | Filed under: Currencies, Hedge Fund Industry Trends, Hedge Fund Strategies, Indexes, Today's Post

Eurekahedge tells us that hedge funds were in the black 4.57% in 2014. That's hardly cause for celebration, since the MSCI World Index returned 6.79% over the same year. But all eyes now turn to the still-sliding price of oil.


Explaining Why the Portfolio-Barbell Works

Jan 20th, 2015 | Filed under: Academic Research, Emerging markets, Liability Driven Investing, Risk management, Today's Post

Most efforts to introduce "entropy" into finance have seen it as a quantity to be minimized. A new paper, which begins as an effort to explain barbell portfolios, uses entropy in a different manner. Unfortunately, it doesn't really end up clarifying those barbells.


ECB Beats SNB in race for the Bottom

Jan 19th, 2015 | Filed under: Algorithmic and high-frequency trading, Commodities, Currencies, Today's Post

An SNB announcement caused wild market moves Jan. 15th, not only in Forex but in commodity and equity prices as well. In the wake of the commotion, one key question has to be: why the announcement? Why this sudden change in the policy of Switzerland's central bankers?


The Quant Conundrum: Perfectly Repeatable or Repeatedly Imperfect?

Jan 15th, 2015 | Filed under: Algorithmic and high-frequency trading, Alpha Seekers, Hedge Fund Strategies, Risk management, Today's Post

Guest columnist Diane Harrison looks at both sides of the quantitative investment debate.


If You’re So Smart, Why Aren’t You Rich?

Jan 14th, 2015 | Filed under: Academic Research, Algorithmic and high-frequency trading, CAPM / Alpha Theory, Today's Post

A new paper by a senior market economist at BNP Paribas celebrates the invention of Learning Vector Quantization (LVQ), a machine-learning algorithm that could enable some smart economists to get very rich indeed.


Let’s Hope Nothing Comes of Sprecher’s Grand Bargain

Jan 13th, 2015 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Sprecher proposes that the exchanges and the investment banks enter into a deal, and that regulators confirm it by various tweaks in the NMS. The whole dynamic that the "grand bargain" represents is a disturing one, old-fashioned smoke-filled-room cronyism.


The State of Alternative Currencies: Tokyo Police and Future Retailers

Jan 12th, 2015 | Filed under: Currencies, Digital currencies, Today's Post

The publisher of Laissez-Faire Books has made some news in the alternative-currency world, declaring that there is a “silver lining” to the various scams associated with such currencies, because cons tend to develop around industries with a bright future. That sounds like a bit of a stretch.


Low-Vol Anomaly Provokes Reflections on an Old Adage

Jan 11th, 2015 | Filed under: CAPM / Alpha Theory, Indexes, Risk management, Today's Post

A new paper by Eric Falkenstein discusses an old question: the reason for the high risk-adjusted return in low-risk equities, and the adjustments it requires in CAPM. This is no fleeting oddity, but a lasting characteristic of markets. In econo-speak, not only the existence but the persistence of the anomaly requires explanation.


Top 10 Hedge Fund Trends for 2015

Jan 8th, 2015 | Filed under: Alpha Hunters, Hedge Fund Industry Trends, Hedge Fund Strategies, Institutional Investing, Today's Post

Guest columnist Don Steinbrugge, CFA, surveys institutional investors and hedge funds to find out what the top trends may be for 2015.


New Greek Political Crisis Looks Like the Old Greek Crises

Jan 7th, 2015 | Filed under: Alpha Strategies, Currencies, Indexes, Today's Post

The newly called snap elections in Greece will serve as a contest between pro-austerity and anti-austerity forces. Anti-austerity means abandoning the bail-out deal, and that position now seems the likely victor.


Thoughts on Futurology and its Perils

Jan 6th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Technology, Today's Post

The Permal Group takes a refreshingly modest view of the eventual impact of Big Data on the business model of hedge fund managers. The better the data about a corporation, the more accurate the stress testing. Yes, that seems reasonable.


The Global Economy in 2015 – 5 Key Trends

Jan 5th, 2015 | Filed under: Alpha Strategies, Today's Post

Guest columnist Shane Brett takes a look at what 2015 may look like from an economic perspective.


Focus on U.S. Real Estate Benchmarks: NCREIF Property Index

Jan 4th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Indexes, Real Estate, Today's Post

Brad Case, Ph.D., CFA, CAIA, guest columnist, continues his series on U.S. real estate benchmarks as he looks at the NCREIF Property Index.


Top 5 Alpha Stories of 2014

Dec 30th, 2014 | Filed under: Alpha Hunters, Commodities, Emerging markets, Today's Post

In the middle of the year now ending, the U.S. Supreme Court delivered as complete a victory as it could manage to the hold-out bondholders in the Argentine-default dispute. Enforcement efforts plod on, and it seems likely a related story could make our top five list next year, too.


The SEC Takes a Limited View of Janus’ Limited View

Dec 29th, 2014 | Filed under: Derivatives, Legislation/Court rulings, Regulatory, Today's Post

A December 15 opinion by the SEC limits the significance of a Supreme Court decision of three years ago, and so at least pending appeal it broadens the applicability of the basic anti-fraud rule 10b-5 to the employees of an investment adviser.


The Magnetism of Insider Trading: Part Two

Dec 28th, 2014 | Filed under: Alpha Hunters, Hedge Fund Strategies, Legislation/Court rulings, Today's Post

In Part One Faille discussed the Newman/Chiasson decision of a three-judge panel of the appeals court. In this follow-up, he discussed consequences, starting (but not ending) with the good news this offers Michael Steinberg.


Yes, Speech is Free for Short Sellers, Too

Dec 23rd, 2014 | Filed under: Hedge Fund Strategies, Legislation/Court rulings, Media Coverage of Hedge Funds, Today's Post

The success of Wynn's lawsuit would have chilled free speech by short sellers. So let us take a moment to celebrate its quick demise at the hands of Judge Orrick. As a general rule, though, when a plaintiff quotes an expression from a transcript that, in fact, is immediately preceded by the word "not," and the plaintiff leaves the "not" out of the quote ... things are knotty.


Money Markets: The Cure to What Ails the Sukuk Space

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

Two World Bank economists review the impediments that face the growth of the sukuk market, impediments often inherent in the theological precepts that gave rise to it. Part of the solution: well-functioning money markets as a context for sukuk issuance.


Longevity Risk: Wary of Your 2015, and of Somebody Else’s Life Span?

Dec 21st, 2014 | Filed under: Institutional Investing, Liability Driven Investing, Risk management, Socially responsible investing, Today's Post

The new survey from Natixis tells us that a lot of asset-managing institutions think their industry as a whole has been quite slow about moving in the direction of liability-driven investment strategies. Also, more than half believe traditional assets are too correlated to provide them with the diversification they need.


Case study: Straits gives managed futures a facelift

Dec 18th, 2014 | Filed under: Commodities, Retail Investing, Today's Post

As alternative investments become more mainstream, managers who traditionally have operated in the alternatives arena face a number of questions, including what is the right offering, the proper structure and how do we market the new vehicle. Guest columnist Ginger Szala examines the thought processes of one group as they made the leap to retailization.


Missing the Market: An American Visits Nigeria

Dec 17th, 2014 | Filed under: Alpha Hunters, Frontier markets, Today's Post

Guest columnist Doug Friedenberg explores Nigeria as a frontier market.


The Magnetism of Insider Trading: Part One

Dec 16th, 2014 | Filed under: Alpha Hunters, Hedge Fund Strategies, Legislation/Court rulings, Today's Post

A three-judge panel of the appeals court instructed the district court to "dismiss the indictment with prejudice as it pertains to Newman and Chiasson." Here we discuss why. in the second part, we'll discuss the likely consequences.


Plans for a Nickel-Tick Pilot: Trouble in the Details

Dec 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Observers of the slow slog toward an empirical test of larger tick sizes have raised concerns about the details of the three-track plan under consideration. In particular, there's an order-protection feature for one of the three "tracks" that has raised the hackles of Larry Tabb and the STA


Does Leverage Have a Positive or Negative Effect on Private Equity Real Estate Investments?

Dec 14th, 2014 | Filed under: Private Equity, Real Estate, Today's Post

Guest columnist Brad Case, Ph.D., CFA, CAIA, explores the effects of leverage on private equity real estate investments.


Election direction, market correction, asset selection…it’s all an investment question

Dec 11th, 2014 | Filed under: Asset allocation, Today's Post

In the U.S., the midterm elections will largely dictate the course of the remaining years of the current presidential term. This course also plays a major role in the future direction and relative strength of the US markets, which subsequently impact advisors’ decision-making for client portfolios. The interplay between these three areas justifies a closer look at how their relationship correlates to the process of investment management.


Qatar and the QIA: When the SWF Is Also a Family Office

Dec 10th, 2014 | Filed under: Commodities, Institutional Investing, Technology, Today's Post

The royal family in Qatar, the House of Thani, just took direct control of the emirate's sovereign wealth fund. Also, that fund just invested big in Uber, confirming its reputation as perhaps the worlds most aggressive deal-hunting institution.


Aligning Interests: Side Pockets, Side Letters, and Central Issues

Dec 9th, 2014 | Filed under: Asset pricing, Best Practices, Hedge Fund Industry Trends, Investment Management Fees, Today's Post

A proposed new set of principles, designed to encourage investors in the alt-investment industry in their discussions with their managements, encourages skepticism both about side-pocketed assets and about other investors' sweetheart deals (i.e. "side letters.")


Don’t Blame the Swiss: Results Discounted Days Before Vote

Dec 8th, 2014 | Filed under: Commodities, Currencies, Forex, Gold, Hard metals, Today's Post

The price of gold took a swan dive as November ended, just as Swiss voters formally nixed an initiative that would have required the central bank to buy a lot of the stuff. Faille argues that this is not a matter of cause and effect. It is, on the other hand, a fascinating case study in the discounting machinery that is a market.


The need-to-knows of Master Limited Partnerships (MLPs)

Dec 7th, 2014 | Filed under: Alpha Strategies, Energy, Today's Post

Guest columnist Andrew Smith, CAIA, deep dives the Master Limited Partnership (MLP) structure.


What Happens to Hedge Funds if 2008 Market Conditions Repeat?

Dec 4th, 2014 | Filed under: Hedge Fund Industry Trends, Hedge Fund Strategies, Performance, Analytics & Metrics, Today's Post

Guest columnist Don Steinbrugge examines what might happen to hedge funds if there's a 2008 "Groundhog Day" in the markets.


The Best Offense is a Good Defense: Profiting from Hedging

Dec 3rd, 2014 | Filed under: Asset allocation, CAPM / Alpha Theory, Performance, Analytics & Metrics, Risk management, Today's Post

A regime switching model may treat a high-volatility environment as one “regime,” and a low-vol environment as its successor regime. The idea, as it applies to risk management, then, is simply to be ready in either setting for the switch to the other. This is both playing defense and playing offense. It is both managing risk and pursuing alpha.


The Growing Problem of Calculating Performance Fees

Dec 2nd, 2014 | Filed under: Alpha Strategies, Best Practices, Performance, Analytics & Metrics, Today's Post

A new white paper produced jointly by FundCalcs and Global Perspectives looks at the growing complexity of calculating performance fees.


Wars and Failed Mergers Make for a Tricky October

Dec 1st, 2014 | Filed under: Emerging markets, Performance, Analytics & Metrics, Risk management, Today's Post

Only two hedge fund strategies performed in the positive numbers in October, the rest were all in the red. Managed futures did best, according to the Eurekahedge numbers, benefitting from their short positions on oil prices.


Focus on U.S. Real Estate Benchmarks: Moody’s/RCA CPPI and CoStar CCRSI

Nov 30th, 2014 | Filed under: Alpha Strategies, Real Estate, Today's Post

Brad Case, Ph.D., CFA, CAIA, guest columnist, examines the value of U.S. real estate benchmarks.


The Economics of Happiness

Nov 25th, 2014 | Filed under: Alpha Strategies, Timely Research, Today's Post

The vast economic growth in the rich nations since the Second World War has failed to make people any happier. Is it time to rethink how we measure economies? A conversation with Prof. Richard Easterlin, a leading scholar in happiness economics.


The Top 0.004%: The Wealth-X Report

Nov 24th, 2014 | Filed under: High-net-worth investors, Indexes, Timely Research, Today's Post

A report focuses on the life and spending habits of the 211,275 wealthiest individuals on the planet, and their network of family and friends.


Capital Markets, Derivatives and the Law

Nov 23rd, 2014 | Filed under: Book review, Derivatives, Legislation/Court rulings, Today's Post

Alan Rechtschaffen quotes two definitions of "moral hazard" in this book. The first, from Ben Bernanke, seems to get the book off to a rather awkward start. The second, from Zachary Gubler much later on, represents something of a recovery.


Business Development Companies: The Basics

Nov 20th, 2014 | Filed under: Liquid Alts, Private Equity, Today's Post

Guest columnist Andrew Smith, CAIA, traces the history of Business Development Companies.


Mergers in Theory and Practice: Synchronicity and Synergy

Nov 19th, 2014 | Filed under: Alpha Hunters, Alpha Strategies, Today's Post

According to a new report from Intralinks and Cass Business School, M&A activity is a critical component in how successful companies innovate and enhance shareholder value. Actavis' latest coup, rescuing Allergan from the clutches of Valeant and Pershing Square, may make the report's authors' point more vividly than their dry numbers can.


Is Private Real Estate Actually Less Volatile than Public Real Estate?

Nov 18th, 2014 | Filed under: Alpha Hunters, Real Estate, Today's Post

Guest columnist Brad Case, Ph.D., CFA, CAIA, examines the differences between private and public real estate investments.


Big Data and Other Trends to Influence Hedge Funds in 2015

Nov 17th, 2014 | Filed under: Conference report, Hedge Fund Industry Trends, Technology, Today's Post

Big Data makes possible new ranges of inferences, and gives value to new skill sets. There will continue to be plenty of roles for human beings in recognizing the shadows cast by the intense light emitted by new technologies.


Extra! Extra! Central Banking the Disease It Affects to Cure

Nov 16th, 2014 | Filed under: Currencies, Forex, Today's Post

The release of Lord Grabiner's report provides evidence going well beyond the conclusions that Grabiner himself is willing to draw, and shows a central bank acting as a wink-and-nod clearing house.


Bitcoin: Three Bits of News on a Microcosm

Nov 13th, 2014 | Filed under: AAA Newsreels, Currencies, Technology, Today's Post, Virtual currencies

A bitcoin-mining fire, a survey of small and medium businesses and their levels of preparedness for bitcoin customers, and a new criminal accusation against an alleged ponzi scheme: all conribute to the sense that bitcoin is a microcosm of the whole financial world, good and bad.


Will HFTs force a market redesign?

Nov 12th, 2014 | Filed under: Algorithmic and high-frequency trading, Technology, Timely Research, Today's Post

One of the unintended consequences of high-frequency trading may be that it forces a market re-design. Guest columnist Ginger Szala looks at the issues.