代替投資ヴェリアンアレンのヘッジファンド 对冲基金 對沖基金


Alternative investment

Which alternatives are true alternatives? Most portfolios are constructed as funds of funds so the main decision is WHO chooses the managers. You or someone you appoint. Replacing long only with long short doesn't help unless skill is present. People with rare talent go where incentives are highest. Why risk money on "low cost" index funds? The best don't compete on fees.

Forecasting alpha and identifying good funds is complex but not impossible. After intensive due diligence, predictive financial analytics and non-linear multifactor modeling I've found the key drivers for FUTURE superior performance are innovation, hard work, great teams, aligned interests and exclusive focus. Most hedge and long only funds cannot meet those criteria.

Value added alpha comes from selecting the right securities or the right managers. It's a similar process. I look for new ideas and asymmetric payoffs. But conventional "wisdom" favors old cheap products with low returns at high risk and minimum margin of safety. Despite investors needing consistent performance, passive pushers resist innovation and even dispute after fee alpha exists! Manager evolvability is a selectable trait.

I wouldn't mind were it not for the disastrous effect such high risk financial "advice" has on hard working peoples' retirement savings and institutions with fiduciary responsibilities. According to some economists it's simply luck but I do get most manager and security selection decisions correct. It's not rocket science. Just common sense, mathematical rigor and tracking the ENTIRE world.

Seek alpha, avoid beta. The persuit of perfection requires understanding over knowledge. I like shibumi investments. Improvize and adapt strategies to CHANGING alpha capture opportunity sets. I hire top teams to focus on making money and hedging risk NOT gathering assets. Hedge funds are called "replacement investments" in Japanese for good reason - traditional long only hasn't worked. Warren Buffett has been a heavy short seller of Nikkei puts. A bullish outlook on Japan which few BRKA watchers know about.

In Japan, like anywhere else, there's lots of inefficiencies for alpha capture. Why wouldn't you want "replacement investments" when bonds don't yield enough and market "recoveries" notoriously give back gains? Dow 12,000 again is almost as boring as the many previous Nikkei 12,000s. I prefer manager skill than risky buy and hold. Constant improvement - kaizen - and continuous innovation - kakushin - are essential for absolute returns in bull AND bear markets.

Luckily 2010 was good for my retirement plan. Not as great as the supposedly "difficult" 2008 or easy 2009 but still above required actuarial returns. Most external alpha vendors did better than +10% after fees - the minimum acceptable target. I directly manage a few special situations if I have an edge and the time to analyze properly. Alpha from emerging markets was a major contributor if only because volatility and mispricings are so prevalent.

My largest USA holding MSB went from 14 until by luck I sold near the high at 56. The second biggest BPT having been ignored after years of double digit dividends finally got attention and I reluctantly took profit at 122. Why waste time in SPY when stock picking is safer? Japan and China aren't sources of beta but fantastic for alpha. I love it when people outside their circle of competence say the places are about to implode. Watching those JGB and yen bears get trapped in short squeezes was lucrative. FXY for the yen but no ETF for the world's largest government bond market? Better to use JGB futures. Long new Japan/short old Japan positions like long Skymark Airlines 9204/short Japan Airlines 9205 did fine. Making 200% on the long and 120% on the short was even better than long Southwest LUV/short Northwest a few years ago. Yes you CAN make more than 100% on shorts.

Just weeks into 2011 and reminders from Tunisia and Egypt EGPT that security selection with innovative research and risk management is the BEST route to absolute returns. And short selling whatever groupthink says is "hot". There's lots of money to be made in China but it won't come from a "passive" China index fund. Maybe it's better to border BRICs than be a BRIC. Not surprisingly Mongolia was the top market in 2010 - all those natural resources sandwiched between Russia and China. I just bought my first Laos stock EDL, years after the initial visit. Of course I also made a few mistakes last year, which is why TRUE diversification is important. Small losses are the cost of doing business. Large drawdowns mean there is something very wrong.

Semantic arbitrage? Despite the name of this blog, in my professional life I long ago stopped using the term "hedge fund" when referring to skill-based strategies. Even "alternative investments" has become a catch-all for any manager not doing long only relative return stocks and bonds. Alpha is available from many sources in public and private markets, in numerous countries over many time horizons. In assessing a fund I strip out any betas and luck to calculate the proportion of returns due to the manager. Skill is persistent, luck isn't. I now use "innovative strategies" as a better term than the overused moniker "absolute return". That was almost as misleading as "market neutral". Every fund I look at that says it's market neutral ISN'T.

All good strategies innovate to keep performing. Alpha is extracting returns out of other market participants. Beta is too risky and unreliable to gamble on for the long term. The best managers make use of the latest financial products and drive the invention of new ones. Style drift is not bad; it may even be preferable in good manager. Paulson & Co. was a merger arbitrage fund but now trades everything from CDOs to commodities. Berkshire Hathaway is wrongly considered a buy and hold shop but Warren Buffett has used alternative strategies and hybrid securities for 60 years. Convertible bond arbitrage, derivatives trading, value investing, event driven were all "new" once. Any style not adaptable to changing market regimes is obsolete. Abnormal returns require keeping ahead of copycats.

There is still massive scope for innovation in portfolio construction and wealth management. Many investors have processes that fail to reap the full benefits of modern investment methods. New strategies and financial products are being developed all the time. Blaming credit derivatives for the recession and GFC - Global Financial Crisis - is like blaming match manufacturers when a house burns down. John Paulson's net worth rose by $5 billion in 2010. Warren Buffett was "paid" $10 billion from eating his own cooking and making clients far more. Their strategies have little in common other than thorough security analysis and working harder than the "crowd". How "hard" does a passive "manager" work? Be proactive not reactive. And definitely not passive.

Variant perception drives alpha. But portfolio optimization remains mired in the beta driven suboptimal mean variance world of Markowitz and Sharpe. Policy asset allocation still dominates while others pay it little attention and INSTEAD focus on security selection and strategy diversification. John Paulson, Warren Buffett and many others aim to put 100% capital to work in good opportunities. They are not concerned with 60% in stocks and 40% in bonds. I find this unrewarded, unhedged faith in asset class returns rather than skill-based strategies strange. Currently it appears we are in a bull market but that will change soon enough. Passive funds end up getting crushed.

Good managers that can make money in any conditions have to be incentivized for the hassle of accepting outside capital and undergoing exhaustive evaluation and monitoring. It's great for investors that so many still make their services available for low fees of 2 and 20 and often cheaper. The crowd fears "exotic markets" and "frontier strategies" but smart investors enjoy spending the returns the mainstream miss. Forget about alternative investments and focus on "innovative investments". Construct robust portfolios that GROW and PRESERVE capital no matter what happens. That takes hard work and it's worth paying for. Invigorate return streams with replacement investments.

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