Japan-focused funds had three consecutive months of negative returns this quarter. These numbers look particularly jarring in contrast to the 2013 returns, from back in the days when Abenomics was being hailed as a success.
Performance, Analytics & Metrics
Have the emerging market assets and the funds focused thereon warranted this return of confidence by their recent returns? The answer to this question can't be any more emphatic than, "yes, somewhat."
Deloitte's pie graphs emphasize the degree to which both hedge funds and PE vehicles have become dependent upon institutions in general, and detached from the retail market. But Deloitte says that 2014 "will likely see additional efforts by alternative fund managers to engage the retail investor base by taking their alternative investment strategies mainstream."
Rene Levesque, guest author, looks at the differences between absolute return and alpha and answers the question: can you absolutely return alpha?
Guest columnist Diane Harrison considers performance. What's the alternative?
Even after the worst of the U.S. debt ceiling crisis passed, concerns about the Yen and unsatisfactory second-quarter performance numbers weighed the Nikkei down.
Guest columnist firm Tesseract looks at mainstream asset allocation and its various risks.
A recent article on the use of catalytic events to predict volatility, written by Paul Rowady of the TABB Group, provides food for thought for derivative traders, crystal-ball gazers, and compliance officers alike.
As a matter of fiduciary responsibility and best business practice, Woodbine says, firms need to conceive of a trading strategy that will optimize their trade execution against objective and quantitative benchmarks, and connect with counterparties who will advance this goal.
CAIA curriculum writers look at the most important metrics.
Grant Jaffarian, AlphaTerra LLC, discussed the importance of messaging
Guest columnist Andrew Beer looks at CTA performance.
The world of cash equities trading is changing and will continue to change, says Celent. Brokerages will have to outsource in order to reduce costs and restore their margins: and some of the outsourcing will involve "the cloud."
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.
Part II of a new SEI report on hedge funds and adapting to survival.
“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.
Beachhead Capital looks at performance in the long/short equity sector and finds that small funds outperform the large.
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.
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.
SEI put together a 10-part guide as an effective risk management tool to set the foundation for operational excellence. Below are excerpts from chapters nine and ten, now available for download at www.seic.com/OpsSurvivalGuide.
Amitesh Kapoor's research into Canadian hedge funds and mutual funds shows that the hedgers really do have a performance edge.
Peter Urbani looks at Cornish Fisher and modified VaR as a function of skewness.
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.
The latest version of a yearly analysis tells the same old story about performance, now backed up by fifteen years of data. And the potential rewards of investing with smaller funds go beyond what you see in the database statistics.
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 [...]
The second in a three-part series on private equity from SEI shows that alpha is a bit slippery these days.
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 [...]
By Christopher Faille A presentation by Samuel Kunz, chief investment officer of the Policeman’s Annuity and Benefit Fund, Chicago, to the CFA Institute 2011 Asset and Risk Allocation conference addressed the pros and cons of “risk parity.” His presentation makes it seem that risk-parity portfolios (RPP) and the Capital Asset Pricing Model (CAPM) are sibling [...]
By Christopher Faille It might be the subject of a Sesame Street episode. “R is an important letter. It stands for Rate and Return and Risk-Free and lots of other words!” Yet, like Oscar the Grouch if deprived of his garbage can, R has lost its fixed abode. Much of the mathematics of finance over [...]
By Christopher Faille One of the scariest things about hedge funds is the loss of liquidity that such an investment involves, with lock-up periods, redemption suspensions, wonder about what is in the “side pockets,” and worry about getting caught in the clanging gates.
When academics from other disciplines turn their attention to finance, they sometimes make some quite startling discoveries. These may at first sight seem to resonate with behavioural finance but they are in fact quite different – and this research has not gone unnoticed by some of the most senior central bankers, financial regulators, and legendary hedge fund managers.
By Christopher Faille The press still seems to be discovering “fat tails” and “black swans.” In July, news outlets gave admiring coverage to the International Monetary Fund’s expression of interest in the ideas of Nassim Taleb, the perhaps-overexposed philosopher who made the phrase “black swan” a cliché upon the success of his 2007 book of [...]
Professor Neil Johnson talks about the DNA of financial markets with AllAboutAlpha's Vikas Shah
As if there wasn't enough confusion in the roiling U.S. capital markets and regulatory environment, the U.S. Second Circuit Court has issued a decision that will make alpha that more elusive for hedge funds involved in shareholder activism.
Hedge fund assets have bounced back from 2008 to make a new high above two trillion and many performance measures have also more than recovered their losses. Yet it seems most of the inflows are being hogged by the Billionaire's Club, despite studies shouting "Small is Beautiful."
A CMRA/IAFE study of the AXA Rosenberg case shows that model risk may not be on the radar screens of many quant funds.
The European Central Bank’s latest regular financial stability review uses the word “normalisation” a lot. But what does that mean?
Nobody seriously thinks hedge fund returns have a normal distribution, so why does old fashioned optimization continue to dictate portfolio construction? Just as prisms in lenses are used to correct some eye defects, do allocators need to look through more statistical windows?
Managed futures and hedge funds aren't exactly best friends, but a new report suggests investors should have the two together as a way to generate alpha the next time a black swan shows up.
A new study finds that the downside to providing position-level transparency (to some investors at least) is basically zero. Good news if you're a hedge fund offering managed accounts.
It's tough to find a benchmark that fits snugly but doesn't cause blisters.
Some types of alpha have a sting in the tail: they hibernate or head south when tail risks appear, while other types of alpha thrive on panics. Crisis alpha is about celebrating low Sharpe ratios, and looking beyond price volatility to gauge risk.
The arbiters of quality investment reporting have released a new set of draft guidelines of hedge fund managers. Most of it is simply a restatement of existing guidelines, but some is designed specifically for hedge funds.