Volatile markets redefine trade component of hedge fund strategies, "position calibration" becomes source of alpha

From Kirsten Bischoff, Opalesque New York:

The markets have changed. Levels of volatility have greatly increased, and the uncertainty that the financial crisis has unleashed on investors is likely to remain for the foreseeable future. These factors make it much more likely that the markets will continue to move from one extreme to the next and strengthen the need for investors to understand and analyze the trade methods of hedge fund managers during the due diligence process.
Specific to the hedge fund industry, it has been determined that investors reallocating to hedge funds are favoring the simplest and the most liquid strategies, which can include strategies that utilize frequent trading.
"The one issue that hedge fund investors must realize is that hedge fund strategies are much more about 'trading' than 'investment'", points out Rene Levesque, Founder of hedge fund due diligence and research firm Mountjoy Capital (www.MountJoyCapital.com).
Levesque, who's background includes overseeing research for a $2bln Canadian based FoHF, positions in back and middle offices, and time as an equity derivatives prop trader, concentrates on the analysis of 14 different factors when providing his clients with fund evaluations

Full story: http://www.opalesque.com/53821/Volatile_markets_redefine_trade_component_of821.html

Volatile markets redefine trade component of hedge fund strategies, "position calibration" becomes source of alpha

From Kirsten Bischoff, Opalesque New York:

The markets have changed. Levels of volatility have greatly increased, and the uncertainty that the financial crisis has unleashed on investors is likely to remain for the foreseeable future. These factors make it much more likely that the markets will continue to move from one extreme to the next and strengthen the need for investors to understand and analyze the trade methods of hedge fund managers during the due diligence process.
Specific to the hedge fund industry, it has been determined that investors reallocating to hedge funds are favoring the simplest and the most liquid strategies, which can include strategies that utilize frequent trading.
"The one issue that hedge fund investors must realize is that hedge fund strategies are much more about 'trading' than 'investment'", points out Rene Levesque, Founder of hedge fund due diligence and research firm Mountjoy Capital (www.MountJoyCapital.com).
Levesque, who's background includes overseeing research for a $2bln Canadian based FoHF, positions in back and middle offices, and time as an equity derivatives prop trader, concentrates on the analysis of 14 different factors when providing his clients with fund evaluations

Full story: http://www.opalesque.com/53821/Volatile_markets_redefine_trade_component_of821.html

Hong Kong Securities and Futures Commission’s half yearly review of the securities market shows economic recovery is emerging

Image by JMRosenfeld via Flickr

From Komfie Manalo, Opalesque Asia:
The Hong Kong Securities and Futures Commissioner has just released its latest research paper entitled: “Half Yearly review of the Hong Kong Securities Market” which shows that despite the recent strong rebound of the global stock markets, fundamental support to the surge in the stock markets has not been broad-based. Signs of economic recovery are emerging at best. The recent rally in the stock market seems to be underpinned by a strong capital inflow, but it should be noted that capital movements are known to be volatile and subject to sudden reversals.
According to the paper, since the trough in early March this year, major stock markets have rebounded some 30% – 60% until the end of June. However, it is worth noting that such strong rebound might not be uncommon following a crisis.
The report says that Hong Kong stocks fell at the start of the year on uncertainties over the global economic performance and concerns about financial institutions in the U.S. The Hang Seng Index (HSI) and Hang Seng China Enterprise Index (HSCEI) dropped to this year’s trough in early March. Later, markets rebounded strongly on optimism over global economic recovery amid signs of stabilization in economies. In addition, strong capital inflow to the Hong Kong banking system and stock market also lifted the markets. During the first half of 2009, the HSI and the HSCEI rose 27.7% and 38.9% respectively from their end-2008 levels.
Full story: http://www.opalesque.com/53590/Hong_Kong_Securities_and_Futures_half590.html

JD Capital Management and FRM Capital Advisors announce strategic relationship

Opalesque Industry Updates - JD Capital Management (“JD Capital”) and FRM Capital Advisors (“FCA”), a division of Financial Risk Management (“FRM”), are pleased to announce their strategic relationship that will provide JD Capital with an inflow of new, stable assets under management and support to drive its refocused business forward.
JD Capital is a Greenwich, Connecticut based alternative investment management firm led by J. David Rogers. The company is returning to its founders’ roots and will focus on volatility trading going forward. Following FCA’s investment JD Capital will manage approximately $160 million in the volatility strategy.
J. David Rogers, CEO of JD Capital, said, “This new investment and relationship with FCA will allow JD Capital to build a strong, long-term business based on our successful eight year track record in volatility trading. FCA’s involvement provides the assets required to manage the strategy effectively and the investment is a sign of institutional interest in volatility strategies. We believe this relationship will enable us to attract further assets from institutional investors.”
Neil Mason, CIO of FCA, said, “JD Capital’s tremendous expertise and impressive track record in volatility trading make it one of the strongest players in this space. It is a great opportunity for FCA to partner with the company and help drive the growth of its revitalised business. Volatility trading is a core strength of the JD team so it is logical for them to focus on this strategy.”


Full story: http://www.opalesque.com/IndustryUpdates/300/JD_Capital_Management_and_FRM_Capital_Advisors_announce300.html

London firms IKOS and Alpha Strategic announce collaboration on revenue sharing agreement

Opalesque Industry Updates - IKOS Asset Management Limited (‘IKOS’), one of the leading European quantitative hedge fund managers, and Alpha Strategic plc (‘Alpha’, ‘Alpha Strategic’), the AIM listed hedge fund investment group, announced a business collaboration augmenting Alpha’s strategy of building a blended income stream from high quality, low-correlated funds, benefiting investors through instant diversification at low cost, and aiming for capital growth through a transparent listed structure.
IKOS and Alpha Strategic announce that they have signed an agreement whereby Alpha Strategic has acquired Acme Advisors Limited (‘Acme’), a wholly owned subsidiary in the IKOS advisory group. Acme has been incorporated to provide sales and distribution advisory services to IKOS in respect of the IKOS G10 Currency Fund Class (the ‘Fund’), one of IKOS’ flagship funds. For the provision of these services, ACME has an agreement with IKOS to receive 7.2% of IKOS’ aggregate management and performance fees relating to the Fund.
The IKOS agreement follows an earlier transaction with Winton Capital Management Limited in 2006. Alpha Strategic will now enjoy a second, non-correlated revenue stream, which serves to expand and diversify the company’s income base.

Full story: http://www.opalesque.com/IndustryUpdates/286/London_firms_IKOS_and_Alpha_Strategic_announce_collaboration286.html

Byron Wien’s Farewell Commentary as Pequot shuts

Byron R. Wien, who joined Pequot in December 2005 as chief investment strategist after two decades as Morgan Stanley’s chief strategist, writes in an investor communication obtained by Opalesque that "What has happened to Art and the firm is sad. I have been in the investment business for close to half a century and I have never worked with a group of finer professionals. We will all go on to other challenges...."
Here is the full text: "Back in the 1970s, Art Samberg, the founder of Pequot, and I were partners at a small Wall Street money management firm. We were both analysts and portfolio managers, but Art had a special talent for technology stocks and special situations. He also managed something called “The ‘57’ Account”, named after Heinz’ 57 varieties because its holdings leant new meaning to the concept of diversification. I left the firm in the mid-1980s to go on to two decades as a strategist at Morgan Stanley and Art left a year later to become an investment management entrepreneur.
When Art started his hedge fund in 1986 I was a charter investor because I wanted to benefit from what I knew by then was his special talent for stock picking. Over the years I referred many friends to Pequot because I believed that Art not only had the ability to manage money well, but also could attract other able investment professionals and guide them as the firm grew.

For full story : http://www.opalesque.com/53374/Byron_Farewell_Commentary_as_Pequot_shuts374.html

Of the major current regulatory developments, the EC Directive is attracting the most controversy

In the last couple of months, the two major developments on the regulatory front were the European Commission’s Directive draft, and the Obama administration’s general overhaul of regulations for the financial system. While the later was generally welcomed, the former has raised much controversy.
The controversial Directive The EC Directive, which first draft was announced on 29th April, and which will have to be approved by the European Parliament and the European Council later this year and be implemented in two years, is thought to be a political response to the credit crisis, heavily influenced by the EU's socialist group, in particular Danish ex-prime minister Rasmussen. As the draft was issued soon after the G20 summit, the European Commission might have tried to get in first (the G20 directive has not been finalised yet.)
The Directive proposes to regulate Alternative Investment Fund Managers (AIFM) established in the European Union who manage more than Eur100m, by authorising and regulating them, demanding more transparency and appropriate governance standards, allowing them to market their funds in the EU, and grant access to the European market to foreign funds after a transitional period of three years.
Infuriated reactions in the UK Seeing more oversight, signs of protectionism and incompatibility with the existing rules, the draft angered the UK fund management population in general. Some of the largest hedge funds warned the Treasury that they would leave Britain unless the draft Directive was drastically modified. The industry association AIMA gathered around a number of luminaries (such as BlackRock, Brevan Howard, CQS, DE Shaw, Fauchier Partners, Lansdowne Partners, Man Group, Marshall Wace) to fight and lobby against it.

Full story: http://www.opalesque.com/53231/Of_the_major_current_regulatory_developments_the231.html

Ernst and Young survey: Reputation the biggest risk for asset management risk managers

Opalesque Industry Updates - Major flaws identifying counter party risk exposures, finds Ernst & Young
Reputational risk is the biggest concern for UK asset management chief risk officers (CROs) followed by the hostile regulatory environment and greater client scrutiny, according to new research published today by Ernst & Young. But CROs are finding that they are not being given the information they need to adequately advise and protect their business nor are they being included in business processes, according to the poll of 23 CROs from some of the largest asset management firms in the UK.
Over a third of respondents can launch a new product from idea in up to eight weeks, while it takes 22% between three to six months. However, only 30% of the CROs thought that the process for pricing new risks into the product was adequate, compared to 48% who didn’t.
Dr Anthony Kirby, director in the Ernst & Young regulatory and risk management practice, comments: “Asset management firms are facing increasingly severe risks as the recession continues. Failing to get CROs involved in new product development or the strategic direction process could result further down the line in disgruntled clients and investors or worse. CROs play a hugely important element in ‘fine-tuning’ products. Their role is really business critical in the current environment.”
Model variations but drive to improve reporting
With market, liquidity and valuation at the top of the agenda for most firms, the report finds a wide variation in ex-ante risk modeling. While the vast majority of those polled undertake such modeling, 26% said they didn’t and 9% didn’t know.
Full story: http://www.opalesque.com/IndustryUpdates/251/Ernst_Young_survey_Reputation_the_biggest_risk251.html