ヴェリアンアレン ヘッジファンド 代替投資 对冲基金 對沖基金

Thursday

Tail risk

Why let the stock or bond market wreck your spending plans or wealth? Why depend on the economy? How can traditional portfolios be considered "diversified" when co-dependencies are so obvious? If stocks and real estate fall, "risk free" yields also drop, doubly worsening retirement liabilities.

Hedge funds aren't alternatives; they are replacements. Quality replacement investments are the way to reduce risk and build return streams for the long term. Adding long only commodities and geographic diversification doesn't help much since they depend on similar demand factors.

Hedge away the wild ride. Market turbulence still hurts too many investors. Keeping to "low cost" index funds is like using slate and chalk when you could have an Apple iPad. Low cost for whom? Financial innovation has progressed but most portfolios remain in the stone age.

Hedge funds seek alpha. Total alpha sums to zero but the hedge fund industry generates large positive alpha. That's despite wide return dispersion and "average" hedge funds being useless. The reasons are simple: the best managers run hedge funds and many trades by non-hedge funds are non-alpha seeking.

Markets aren't efficient. Many securities get bought if they are in an index not because skilled analysis shows them to be good investments. Forced selling from pressure to be fully invested at all times amid redemptions and forced buying so as to minimize index tracking error means many trades aren't made in the pursuit of alpha. Most currency and commodities transactions are not alpha driven either. That creates vast alpha capture opportunities for a few people that know what they are doing.

Risk is minimized if you diversify properly. Isolate skill and hedge beta and factor risk. Keep plenty of shorts especially during up markets as long only doesn't diversify enough. Terrible equity performance despite vicious volatility for many years. You can't pay REAL WORLD bills with theories. Only absolute returns can.

Equity risk but no return premium? I invest in skill instead of gambling on volatile asset classes. Why let precious alpha get crushed by pathetic beta? Bear markets and low interest rates don't impair the ABSOLUTE RETURNS of competently constructed portfolios. The future is unknown so robust hedging and multistrategy alpha are essential if you have ABSOLUTE LIABILITIES to fund.

The S&P has had no price gains since 1998, FTSE since 1997 and TOPIX since 1983. 28 years! Japan isn't an exception, it's the leading indicator and little was learnt elsewhere. Keep to the plan but what if the target date glide path for stocks is much lower? Smart investors adapt to changing regimes while passive dinosaurs die out. Don't waste time and capital in unskilled funds that supposedly might go up eventually. Don't let beta "expected returns, unexpected risks" destroy YOUR wealth. Why invest in anything else when the top talent is at hedge funds not long only?

Shorts are mandatory; longs are optional. How many more lost decades can we afford? Government debt concerns hit markets so "rational" investors buy "safety" in zero yield cash! My retirement plan needs real absolute returns in all market conditions so is ONLY invested in alpha. I don't want a cent run by "cheap" managers. I prefer +8% every year after fees no matter what happens and only the best deliver that. Proper hedge funds aren't the problem; they are the solution.

Time to buy? Volatility is a blessing since forced trading, mispricing and arbitrage situations increase. Unacceptable losses for so many years show unskilled long only is for speculators but skilled long/short is for widows, orphans and retirement plans. Time to REPLACE the risky beta bet with alpha solutions. Beta bandits had their chance but the damage they have wrought must now cease. The only fund manager mandate that makes sense is absolute return, not to beat benchmarks. The asset class fixation should make way for superior MONEY MAKING strategies. It's always time to buy alpha but not beta. Is your portfolio stress tested for the possibility of stocks being lower in 2030 than today? 2050? If not, why not?

Emerging and frontier markets offer alpha opportunities NOT beta anymore. Real hedge funds are in the business of trading, finding inefficiencies and monetizing volatility for absolute returns. Managers needing bull markets to make money are running closet index funds NOT hedge funds. Acid tests like market drawdowns and volatility are great for differentiating true ability from random luck. Triumph of the realists or revenge of the pessimists? Passive pushers buy stocks in an index not because it's growing or cheap!

Value-added analysis is impossible? Ignore TVaR despite the devastating damage index funds inflict? Every debt capital markets professional knows the criteria for a bond to be in a fixed-income benchmark. No matter how badly priced or default probability, passive funds buy REGARDLESS OF VALUE. That's the problem of rules-based index construction and beta dominated asset allocation. Dog stocks and bonds bought by index and relative return funds while good hedge funds avoid or short sell them. The result is net POSITIVE ALPHA for hedge funds, of which the best produce the mother lode.

The three decade bull market in "risk free" bonds continues despite "more" default risk. Last year I must have seen at least 200 presentations on how yields would rise in 2011! If you bought 30 year Treasuries in August 1981 you locked in over 14%, outperforming ALL equity indices but massively underperforming hedge fund "retirees" George and Warren. Soros and Buffett had outstanding track records from the disastrous (for beta) 1970s but were ignored by most allocators even then.

Unconventionally lucky David Swensen urges YOU to invest in index funds so he can keep better alternatives for himself. Track what people do not what they say. Not that Swensen knows much about prudent investing or manager selection. He doesn't as his poor RISK-ADJUSTED returns show. While the Yale endowment avoids it, he says the common man should make do with VFINX which has done NOTHING for holders since summer 1999.

Today the 30 year Treasury yields 3.55%, woefully inadequate for anyone looking to preserve wealth, fund retirement or beat inflation. There's not much safe haven in bonds at those rates. The Fed says it's keeping rates low till 2013 but it'll be much longer than that. Bank of Japan has had "temporary" zero interest rates for many years but people still love the yen reserve currency. The record of credit rating agencies is bad but more importantly ask yourself are current yields worth the trouble? I don't care if a bond is rated C or AAA, only how wrongly priced it is to its value. There are no toxic securities only the toxic prices the unskilled pay because it's in an index.

Bonds don't yield enough, stocks aren't reliable so how to get an adequate return? The answer is long short security selection and tactical market timing; better known as ALPHA. If your portfolio needs high consistent performance over the long term, you need to be able to analyze securities and time markets yourself or hire dedicated managers who have PROVED they can and whose ENTIRE personal cash is invested alongside yours. All I do everyday is analysis and due diligence to find the NEXT Georges and Warrens.

Skill at long short security selection and market timing are the drivers of consistent return. How can index funds be "low cost" considering the wealth destruction they wreak. I'm too conservative to take beta risk. Even if I was CERTAIN of a bull market I could never advocate a long only portfolio. I just try to make +10% after all fees each year at the lowest risk whether the Dow and Nikkei go to zero or 50,000. If your portfolio isn't stress tested for any eventuality you have the wrong portfolio.

I'm glad brilliant managers make their skills available for such bargain fees as 2 and 20. It would be simpler for them to just trade family and friend money. The sooner pension plans are 100% invested in hedge funds the better for society. No need to cut benefits or raise retirement ages and capital contributions. Pay those absolute liabilities from absolute returns. Avoid typical hedge funds by doing sensible manager selection and portfolio optimization. Access consistent returns and eliminate tail risk with REPLACEMENT investments. There are no alternatives.

By Hedge Fund Creative Commons License

This work is licensed under the Creative Commons Full Attribution, Non-Commercial, No Derivative Works 3.0 License

Hedge Fund Hedge fund

ヘッジファンド

F u n d §©®±¼½¾µßαβγδσ€∂√∞≠♠♣♥♦ΣΦΨΩ Follow Me on Pinterest