Under standard portfolio theory assumptions, it takes three times longer to recover from the maximum draw-down for a particular strategy than it does to get there. Fortunately, those assumptions seem to be wrong in a way that allows for a more rapid return to a high water mark.
Asness, Frazzini and Pedersen produce data indicating that over a long period in the U.S., a regular bet-against-beta strategy, one not designed either to accentuate or to eliminate differences among the different industries represented in the portfolio, earned CAPM alpha of 0.73.
Earlier scholarship, largely devoted to the U.S. equities context, has indicated that well-known predictors don't predict well in out-of-sample contexts. But by combining fifteen factors, and by moving the scene of their study to Australian, four scholars have obtained a more upbeat result.
“Few managers would be surprised,” SEI says, “that nearly one-third of the institutions queried in SEI’s 2012 survey reported making their due diligence processes more robust over the last two years.” The new robustness in the search for the nature and sustainability of the funds’ edge involves a new granularity, the questioning of specific investment decisions in the context of portfolio construction models.
Allen & Overy’s white paper puts it among those who take a rather gloom-and-doom attitude toward the likely consequences of a recent Second Circuit decision on Argentina's default. Personally, I don't agree that the sky is falling on the sovereign debt market.
The obvious reason for the allocation preferences of healthcare endowments is that they believe they need to remain very liquid. Jarvis, in this white paper, points out that the liquidity preference comes at a cost in performance.
Beachhead Capital looks at performance in the long/short equity sector and finds that small funds outperform the large.
For the alternative-investment industry the takeaway from the NACUBO-Commonfund Study this year may be that there is a long-term trend among endowments toward increased allocations to alternative strategies, and that this trend continues. The overall such allocation increased by one percentage point from 2011 to 2012: to 54 percent.
Rene Levesque looks at risk management and absolute return from an industry practitioner's point of view.
The crux of whether a particular MLM is a pyramid scheme, and thus is illegal, is this: is a particular participant paid primarily on the basis of the products he sells or primarily on the basis of the new participants he recruits? The crux for Ackman's trade is whether he can persuade enforcement authorities that it is the latter.
AllAboutAlpha's Vikas Shah talks to David Prager of DeBeers about the diamond market.
If you are managing the portfolio of an institution that invests in hedge funds, you might want to ensure that some sizable portion of the HF-allocated assets go to funds managed by women-led firms. In this, you will have company.
Bank of England white paper on high-frequency trading yields little in the way of return.
Hedge fund partners and traders in a given city socialize together, they talk shop, and they may have histories together in other local institutions before opening their respective hedge fund firms. They naturally develop locally distinctive ideas and practices, such as the value emphasis in Boston, or the relatively lower fees distinctive to Dallas.
What may have been the single most important alpha-related story of this busy year is that a former manager of Bain Capital failed in his effort to become President of the United States. In the course of the effort, Gov. Romney and his adversaries made the PE world a mainstream political issue to an extent it had never been before.
A recent investigation into merger arbitrage by Matthias Buehlmaier and Josef Zechner reduces what might seem qualitative considerations into a quantity. They use the wording of newspaper reports as a guide to the probability that an announced merger or acquisition will actually close.
The lead-up to the late October Bank of Japan announcement constituted a moment of truth for opportunistic hunters of alpha. Start 22 Fund took profits in the mid-October rally and ended the month up 2 percent, despite generally weak equity markets. Carnico Japan was "less nimble," in the words of GFIA.
Away from the bleak headlines, the funds of hedge funds industry is quietly reinventing itself.
Guest interviewer James Stafford talks to Andrew McCarthy about the new trends in energy trading.
Columnist Doug Friedenberg looks at why the American understanding of climate science has been exceptional, why substantial financial interests may bring it in line with the rest of the planet, and why portfolio managers should care in the first place.
Either Portugal or Italy could kick off a move toward the use of gold as collateral for sovereign debts. Each country has significant supplies of the stuff. Portugal, for example, has 383 metric tons, equaling 90 percent of its foreign reserves.
A new paper seeks to resuscitate the expectation hypothesis as a view of how the yield curve works. Karim M. Abadir and Christina Atanasova argue that if one discards a handful of "extreme observations," including such unusual events as the "Volcker experiment" in the U.S. in the early 1980s, EH works quite well as a model.
Richard Weil, the CEO of Janus, offered introductory remarks for a panel discussion on the day of the first Presidential debate. “We’re more and more … disconcerted by messages we hear from the press” pressing politics – domestic and international – onto the attention of investors, asking: “what happens if Europe melts down” or if there is a hard landing in China, etc. The panel would discuss both of those issues. But the panelists' thoughts would keep returning to America.
In the years before the world financial crisis, an endowment oriented model was gaining some ground [in the family-office world] following on the example of Yale University and its long-time CIO, David Swenson. But, frankly, there has been some questioning of that as of late.
Amitesh Kapoor's research into Canadian hedge funds and mutual funds shows that the hedgers really do have a performance edge.
The new technologies make less difference than some might think. "Even back in the days of physical market makers, when things went bad, as for example in the crash of '87, the market makers would head for the hills," said James Angel. Nowadays the computers go dark. Or (worse) they don't.
In a study of its own portfolio the Kauffman Foundation found that only twenty of 100 venture funds “beat a public-market equivalent by more than 3 percent annually”.
Why has Singapore attained such prominence as it has? That is a mixture of nature and nurture. It has always been a trading hub due to its location, and this has allowed it over the centuries to develop as a professional and commercial services hub as well, which has anchored a capital markets ecosystem.
James Clayton, CEO of Ingenious Investments talks to AllAboutAlpha about investing in media and entertainment. Their portfolio includes films such as Avatar, Rise of the Planet of the Apes, X-Men: First Class and TV productions such as Law and Order UK, Monroe and Foyle's War.
Keith Black, PhD, CFA, CAIA, discusses trading volatility in Part II of this two-part series.
Vikas Shah speaks to Nicholas Economides about the Greek opportunity.
The Clearing House Association has filed an amicus brief in the NML litigation, effectively acting on behalf of its member banks, arguing that the pari passu language in the bonds issued by Argentina in the 1990s folllowed “standard language included in substantially the same form in numerous credit documents,” and contending that a decision upholding the district court would upset “the long-understood meaning of these clauses in the market.”
Simon Lack's critique of the whole hedge fund industry wasn't that of an 'Occupier.' He had the background, and the publisher, to make his attack credible. But was it accurate? The research committee of the AIMA begs to differ.
Mark Casella, leader of the U.S. alternatives group at PwC, explains that no manager "ever wants to put gates up or to announce a suspension," and talks about how the contract provisions that provide for such powers have been modified of late. This is part of the broader issue of the alignment of interests.
The reason for the increased interest in alternatives, McKinsey says, isn’t that the alternatives’ managers are slashing the price of their services. It is, rather, a discontent with the return to be gained from traditional investment. “Even with downward pressure likely over the next few years, revenue yields for institutional alternative products should remain well above the 35 bps average earned on today’s traditional institutional products.”
Mark Casella, leader of the U.S. alternatives group at PwC, tells us why he thinks funds of funds still have a role to play in the future of the hedge fund industry, although "we have seen more and more institutions invest directly in hedge funds rather than through funds of funds." This is the first part of a two-part transcript of a broader discussion.
Given reasonable assumptions, one might expect that those investing in commingled products offering exposure to agriculture would take part in both good investment returns and diversification benefits. Alas, though, GFIA found no such thing, and considers the possibility that agriculture as an asset class has decoupled from fundamentals.
The survey also asked that the asset managers state where their total assets are invested, using four geographical categories: Europe; Central/North America; Asia Pacific; Other. Commodity funds were easily the most heavily invested in C/NA, to the extent of 94 percent of their portfolios. Private equity funds are 61 percent invested in C/NA, and PE FoFs also have the majority of their portfolios there, at 54 percent.
Shane Brett, managing director at Global Perspectives, UK, provides a series of alternative investment "beach reads."
In a world where financial services are a bit less than loved, Diane Harrison looks at what it takes to be a reputational success.
By the end of May the spread between German and Spanish bond yields was extraordinary. Spanish 10-year bonds were yielding 6.5 percent, German bonds only 1.347 percent. What Spain would have to do was becoming obvious to everyone by then, though it took Spain until well into June to do it, finally requesting and obtaining as Mathema puts it “a financial lifeline of up to €100 billion to shore up its troubled banking system” from the EU.
Institutions aren’t to be rushed into committing to a hedge fund. The process can take more than a year. Preqin asked institutions: once a fund has caught their attention, specifically once they have first seen a fund proposal, how much time typically passes before they actually make an investment, if they do?
In a presentation about Malaysian derivatives trading, the issue of capital controls, and memories of the late 1990s, briefly came to the fore. Assume that a foreign investor considers Malaysia a promising place to invest. Will this investor be confident that if he does so he’ll be in a position to repatriate at his own choosing?
Prof. Michael Spence helps us to understand why information and speed matter in the global economy and gives his views on the state of the world now, and in the future.
Veteran consultant Charles French, CAIA, discusses how to properly forge relationships with investment consultants.
AllAboutAlpha talks to Jalak Jobanputra, MD at RTP Ventures on the mobile payments market, which is set transact over US$1 trillion by 2016.
Decisions by the Fifth and Third Circuit Courts of Appeal in 2009-2010 threw into doubt the right of lienholders to credit bid at an auction pursuant to a cram-down reorganization plan. The problem was the vague phrase "indubitable equivalent," and its overly literal interpretation by those two Courts.
Canadians are justly proud of their banking sector, which has endured through the global credit crises of recent years with barely a murmur. AIMA Canada credits its stability in part to capitalization. Canadian banks “greatly exceed the guidelines set by the Bank of International Settlements” on this matter.
Rene Levesque, Mountjoy Capital, discussing alpha and the traders who generate it.
A deeper look at alternatives with Dr. Bob Swarup, a world-renowned expert and commentator on alternatives and financial markets as well as being a visiting fellow at London School of Economics.