Browsing: Hedge Fund Operations and Risk Management

Hedge Fund Operations and Risk Management

Hedge Fund Operations and Risk Management

Arbitrage Pricing Theory and Large Pricing Errors

Dec 13th, 2015 | Filed under: Allocating to A.I., Alpha & Beta, CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Hedge Fund Operations and Risk Management, Newly Added, Portable Alpha & Alpha/Beta Separation, Risk Management & Operations, Risk Management Strategies & Processes

Uppal and Zaffaroni use Arbitrage Pricing Theory as a meta-model: a model that can be employed to check the errors in the specification of first-order models that in turn are used to value assets.Read More


For Practitioners of Risk Parity: Don’t Panic

Dec 6th, 2015 | Filed under: Allocating to A.I., Hedge Fund Operations and Risk Management, Newly Added, Risk management, Risk Management Strategies & Processes

A new paper by Cliff Asness puts the recent relative weakness of Risk Parity Portfolio performance into a broader context. The cumulative excess return from what he calls "simple risk parity" continues to rise steadily though undramatically. Read More


Regulatory reporting – key considerations for fund managers and service providers

Jul 15th, 2014 | Filed under: Hedge Fund Operations and Risk Management, Regulatory

Keeping track of the AIFMDs, FATCAs without drowning in the alphabet soup is hard work. A new paper from Grant Thornton offers some ideas on how to wade through the soup while you're looking for alpha.Read More


How Hedge Funds Need to Adapt Part II

Apr 21st, 2013 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Hedge Fund Strategies, Institutional Investing, Performance, Analytics & Metrics

Part II of a new SEI report on hedge funds and adapting to survival.Read More


Portfolio Risk: The Case for Outsourcing

Feb 4th, 2013 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

A FinCad white paper looks at the efficiencies and cost-effectiveness of outsourcing risk analysis.Read More


Hedge Fund Business Expenses: Like Shopping for Shirts

Dec 17th, 2012 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

The smallest of the four groups of hedge fund firms, those with AUM under $250 million, control only 6.3 percent of the industry's assets, yet pay roughly 19 percent of the aggregate business expenses. It's tough to be small, better to be medium sized, still better to be large, though it isn't necessarily best to be extra large.Read More


A Fresh Look at Track Records and Risk

Nov 29th, 2012 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Risk management

In Jack Schwager's view, the hedge fund industry as a whole is not a "mirage" at all. But relying on the past track record of specific funds or strategies: that is a dangerous reliance upon a mirage. Perhaps suggest that Grandma should put her nest egg in a diversified fund of funds.Read More


140% or More: Rehypothecation for Risk Managers

Nov 28th, 2012 | Filed under: Hedge Fund Operations and Risk Management, Risk management

As David Belmont reminds us in his new paper for the Commonfund Institute, in the U.S. there are limits on the practrice of rehypothecation. A broker can only reuse in this way assets of up to 140 percent of the value of the client's liability to said broker. Intriguingly, in the U.K. there are no such statutory limits. Read More


Top 10 Operational Risks: The third and fourth risk areas in a 10-part series

Oct 4th, 2012 | Filed under: Hedge Fund Operations and Risk Management, Risk management

Operational risk within investment management firms can stem from many sources. Firms also have varying tolerance levels for accepting or handling such risk.Read More


Wanting to Hedge and Wondering How

Sep 30th, 2012 | Filed under: Hedge Fund Operations and Risk Management, Institutional Investing, Risk management

Institutional investors and consultants are by now very sensitive to the fact of fat tail risk, and are no longer confident that diversification among traditional asset classes is a sufficient approach to the management of this risk. Portfolio changes now underway reflect this heightened sensitivity.Read More


22 Years since Lamfalussy: Infrastructure Issues

May 7th, 2012 | Filed under: Hedge Fund Operations and Risk Management

Awkward and unexpected results from insolvency are among the legal risks to which inadequate financial market infrastructures (FMIs) can lead. There are also credit risks, liquidity risks, and in a future time of crisis or stress: contagion. Read More


The Brand of Hedge Funds

Apr 26th, 2012 | Filed under: Alpha Strategies, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Hedge Fund Regulation

"This industry will perhaps never really shake off the aura of secrecy and inevitable rumor mill, but investors and risk managers need to really start to judge funds on the metric against which the funds judge themselves: performance."Read More


What Were They Thinking? From MF Global to Raj & Bernie to LTCM…

Feb 7th, 2012 | Filed under: Hedge Fund Operations and Risk Management, Risk management

The right question is not what were they thinking, but what were they feeling? Get organized about detailing what feelings are being acted out and you’ve landed on the missing link in risk prediction.Read More


A Word of Caution on the Modified Distribution

Jan 29th, 2012 | Filed under: Hedge Fund Operations and Risk Management, Performance, Analytics & Metrics

Peter Urbani looks at Cornish Fisher and modified VaR as a function of skewness.Read More


Fine Print As Yet Unwritten, But the Gist is Clear for OTC Derivatives

Oct 4th, 2011 | Filed under: Alpha Strategies, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Hedge Fund Regulation

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.”Read More


Passivity, Activity, and Alpha in Currency Management

Oct 2nd, 2011 | Filed under: Alpha Strategies, Currencies, Hedge Fund Operations and Risk Management, Hedge Fund Strategies, Performance, Analytics & Metrics

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 waysRead More


Financial Technology: Neither a Luddite Nor a Sucker Be

Sep 18th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

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


Will the Babble of Many Taxes Scupper Hopes for Merger Mania and Cost Cutting under UCITS 4?

Aug 30th, 2011 | Filed under: Fees, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Hedge Fund Regulation, UCITs

There are high hopes that the new UCITS framework that took effect in July could herald rationalisation amongst Europe’s regulated hedge funds. While tax factors could slow down the process, UCITS has plenty of other growth drivers besides cost savings.Read More


Activist Hedge Funds: War for the Hearts & Minds of Accountants

Aug 25th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

Corporate CEOs aren't the only ones who dread the appearance of activist hedge fund managers on their radar screens. Activists are giving the accounting departments pause as well, according to a new paper by Hall and Trombley.Read More


A ‘little dab’ might not do ya

Aug 18th, 2011 | Filed under: Alpha Hunters, Hedge Fund Operations and Risk Management

The adage that everything in moderation is a good thing doesn't necessarily apply to funds of hedge funds, according to a recent academic report.Read More


Controlling Costs without Leaking Trading Secrets

Aug 17th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

By Christopher Faille Hedge funds are accustomed to outsourcing a variety of daily activities, from front to back office. Many do get nervous, though, about how far their outsourcing should go. Their skittishness increases as such proposals encroach upon the way they generate alpha, the matters that must be keptRead More


Sibling Rivals: CAPM versus The Risk Parity Portfolio

Aug 16th, 2011 | Filed under: CAPM / Alpha Theory, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Institutional Investing, Performance, Analytics & Metrics

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 AssetRead More


An Identity Crisis for the Variable ‘R’

Aug 15th, 2011 | Filed under: Hedge Fund Operations and Risk Management, Performance, Analytics & Metrics

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 ofRead More


Alpha Hunter Krishna Menani: The Opportunities and Risks in Bond Markets

Aug 11th, 2011 | Filed under: Alpha Hunters, Hedge Fund Operations and Risk Management, Institutional Investing, Retail Investing

In any economic system, the fixed-income market plays an essential role as one of the principal ways of financing enterprise (be it corporate or sovereign).  Research shows that at the end of 2010, the global bond market had amounts outstanding of over US$95 trillion (to put that in context, theRead More


When all #%@)*$ breaks loose, blame hedge funds

Aug 10th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

Hedge funds are already being laid to blame for the latest market rout, whether true or rhetoric. And the worst is likely yet to come. Read More


Wanted dead or alive: fat-tailed black swan

Aug 7th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Performance, Analytics & Metrics

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 successRead More


Alpha Hunter: The DNA of Financial Markets

Aug 4th, 2011 | Filed under: Alpha Hunters, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Performance, Analytics & Metrics

Professor Neil Johnson talks about the DNA of financial markets with AllAboutAlpha's Vikas ShahRead More


A Hedge Fund Risk Profile Changes As the Moon Waxes and Wanes

Jul 25th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

Two economists cogently contend that looking at developments in hedge funds' monthly risk profile will be most revealing.Read More


Letting the tail wag the dog: Transforming extreme risk into normal risk

Jul 20th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

A recent comic strip featured a somewhat ambitionless twentysomething relating that she had seen her cat lick its own back and her dog catch its tail, fulfilling their lifelong goals all before she had even formulated ones of her own. Asset managers prefer not to see the market catch its tail – it means deep drawdowns for their portfolios. A recent research paper, however, suggests that it's better to try to catch the tail – and shorten it – than to hope it won't happen.Read More


Quant Funds: Model Risk and Error Disclosure Missing From Many Radar Screens

Jul 19th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Institutional Investing, Performance, Analytics & Metrics

A CMRA/IAFE study of the AXA Rosenberg case shows that model risk may not be on the radar screens of many quant funds.Read More


Hedge funds and prime brokers: the party’s not over, but the venue changed

Jul 17th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

It's a new paradigm for prime brokers still looking to develop and expand on their hedge fund relationships. The types of offerings - and the infrastructure hedge funds demand - are a whole new ballgame.Read More


How well does your hedge fund hedge?

Jul 5th, 2011 | Filed under: CAPM / Alpha Theory, Hedge Fund Operations and Risk Management

A perfectly "hedged" fund is one which has no downside risk. Its payoff relative to the market or some other benchmark is the same as that of the fund plus a put option that provides protection against the downside. In the real world...Read More


The Search for a New Normal in Europe

Jul 4th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Performance, Analytics & Metrics

The European Central Bank’s latest regular financial stability review uses the word “normalisation” a lot. But what does that mean?Read More


Is Glasnost Coming to Risk Aggregation-Linux Style-to Hitch Up Hedge Fund Skirts?

Jun 28th, 2011 | Filed under: Hedge Fund Operations and Risk Management

Risk Aggregation has been expensive, and prohibitively so for some, whether it’s in-house or out-sourced. That may be about to change, but just as Skype phone calls are not always the best quality, so too some investors will still want to go further than the free solution.Read More


The Risks and Opportunities of Unforeseen ‘Black swan’ Market Events

Jun 27th, 2011 | Filed under: Hedge Fund Operations and Risk Management, Institutional Investing

Vikas Shah discusses the "left tail" with Mark Spitznagel, founder and CIO of Universa Investments.Read More


At least 7 black swans a swimmin’ in the asset pool

Jun 21st, 2011 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Operations and Risk Management

In the alpha world, skill often depends on the support of other factors. Some call them pedigree, process and performance, and rank them in that order. There's only one problem: despite the best pedigree, and the best process, performance can suffer tremendously when something unpredictable occurs – a black swan or tail risk.Read More


Grab those nickels! That bulldozer is running

May 24th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

Optimism not seen since pre-2008/09 markets leads managers to invest in their firms as well as the markets.Read More


Don’t drive your Ferrari – or your hedge fund – without insurance

May 18th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

If you drive a hedge fund, best to have some kind of insurance, though what it will cost you will depend more on the kind of car you drive than on your driving record. Read More


Can networking actually be a bad thing for hedge funds?

May 2nd, 2011 | Filed under: Hedge Fund Operations and Risk Management

A recent study suggests to at least one mass media outlet that hedge funds should mind their own business and not by nosy about other hedge funds' trades. But a closer reading of the study suggests to us that it's extremely difficult to measure the vast array of social interactions in Hedgistan.Read More


Do funds of funds set themselves up for a “liquidity mismatch”?

Apr 6th, 2011 | Filed under: Hedge Fund Operations and Risk Management

Many commentators point to the mismatch between the liquidity terms of funds of funds and those of their underlying managers as a reason for the challenges faced by many funds of funds. But do the numbers support this conclusion? Read More


Hedge funds and systemic risk: Whether avoiding it or preventing it, it’s all about the footprint

Mar 9th, 2011 | Filed under: Hedge Fund Operations and Risk Management

Two and a half years have past since the global credit meltdown and there's still concern about the suspected systemic risk of hedge funds. The investigation's going in the right direction, but the real clues are in the footprints, according to the U.K. Financial Services Authority's latest report.Read More


Report: Hedge funds should stick to the Green Zone to avoid land mines, enemy fire

Mar 8th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Performance, Analytics & Metrics

For some investors, the hedge fund world is assumed to be riddled with potential land mines and threats of heavy gunfire. Which is why finding managers who stick to the "Green Zone" is good practice, according to a new white paper. Read More


Ok, Mr. Hedge Fund Manager, please put on the robe

Dec 9th, 2010 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

To thrive in a newly open and transparent world, hedge fund managers need to lose their inhibitions in front of investors, who are demanding more transparency and accountability than ever, according to a recent report.Read More


Can emerging hedge fund elephants stay nimble and responsive?

Nov 18th, 2010 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

For mid-sized hedge fund managers to attract and keep institutional money, they need to have the infrastructure to handle it. Problem is, in many cases, they need the allocation first before they can - or want to - increase their infrastructure.Read More


Twelve “less angry, more transparent and more objective” men…

Nov 8th, 2010 | Filed under: Hedge Fund Operations and Risk Management

The banality of jury selection and the process of manager selection for funds of hedge funds share many of the same characteristics, even more so in the post-crash environment where both managers and investors expect - and are expected - to hear all sides of the story before laying down the law, or allocation.Read More