Alpha Mail - A monthly email update from AllAboutAlpha.com
Dear Alpha Mail Subscriber:
 
The new decade seems to have ushered in a "back to basics" attitude amongst readers.  The separation of alpha and beta - of active and passive - of skill and luck - is the central foundation of AllAboutAlpha.com and, we argue, of the alternative investment industry in general.
 
So we were pleased to see that the excellent alpha/beta separation monograph penned by Roger Clarke, Harindra de Silva and Steven Thorley (see "Why bother separating alpha and beta?" below) attracted considerable interest.  The paper makes a cogent argument for why the embedded proportions of active and passive risk in a traditional active fund isn't always the most optimal.  Ergo, the ability to tweak this proportion using (much maligned) portable alpha strategies can deliver a higher Sharpe Ratio.
 
In "Two amazingly simple rules for making alpha/beta allocations" (below), we covered an interesting paper by Robert Scott of Schroders Investment Management.  Scott lays out a couple of rules of thumb when adding alpha sources to a portfolio.  Counterintuitively, he also lays out the conditions under which an investment with a negative information ratio can still add value to a portfolio.                  
 
Posts on topical issues in the hedge fund industry also attracted interest.  Stories on the performance of the stocks most held by hedge funds, the value of "frozen" assets, ever increasing hedge fund industry concentration, and the ongoing immigration from Mutualfundia to Hedgistan also attracted interest.
 
Well-known industry commentator Alexander Ineichen's first of a three part "children's story" on the global financial calamity also made the top 10 last month.  We have since run the second and third acts of his entertaining and trenchant commentary.  (Think: British comedy duo Bird & Fortune meets Winnie-the-Pooh...entertaining stuff indeed).
Last Month's Most Popular Posts 
  1. Hedge Fund Alpha: Knowing when to hold 'em and when to fold 'em. So while hedge funds seem to know when to hold 'em and when to walk away, some - the big ones at least - may not always know when to run.

  2. Why bother separating alpha and beta? Here's why.
    With the un-alpha-like performance of the hedge fund portion of portable alpha strategies last year, it's easy to disregard alpha/beta separation as hype.  But here's a must-read paper that shows why the concept is fundamentally sound.

  3. The Ineichen Dialogues: A Green Pig Down Wall Street. Try reading this one to your kids as a bedtime story tonight.  They'll quickly know more about hedge funds and the credit crisis than the average investor.

  4. Study aims to shed light on "darkness" in hedge fund databases. Researchers have adjusted for a reporting bias in hedge fund databases for many years.  But a new study suggests these biases run both ways.

  5. Cold Snap: What's a "frozen" hedge fund asset really worth? The administrator in charge of distributing the frozen assets of Lehman Brothers Holdings Inc. announced last week that it had struck a deal to return some $11 billion to creditors. But how exactly are those assets being valued?

  6. Two amazingly simple rules for making alpha/beta allocations. Leave it to the investment practitioners to come up with, well, "practical" tools...

  7. And the big get bigger... A new report from Barclays Capital's prime services group shows that assets are flowing in the right direction again when it comes to hedge funds. But the findings also show that not all in the hedge fund world are privy to the same good fortune.

  8. A January Tradition: Investors' love/hate relationship with hedge funds. As investors reflect on last year, they are apparently of two minds regarding hedge funds.

  9. Eurozone Hedge Fund AUM: What up!? The hedge fund industry is reportedly on a comeback.  So what's going on in the Eurozone?

  10. The grass is always greener... mutual fund managers' walk on the wild side not so wild after all. The allure of making big money and being your own boss was plenty to lure many a mutual fund manager to the hedge fund world. The reality, according to a new study published last month, is that there was almost no way to obtain the same level of compensation or better.
I'll be at GAIM USA in Florida next week moderating the panel "Reshaping the institutional fund of funds business".  It should be a fascinating session that I'm sure will touch on various hot button issues from Madoff to last year's performance.  If you're planning to be there too, please say hello.  It's a great event and this year will undoubtedly feature a lot of crystal ball gazing.
 
I'm also going to be attending the New York edition of the Battle of the Quants at the end of the month, a great one-day event now in its fourth year with spin-offs now held in Europe and Asia.  Regular readers may recall last year's "live blogging" of that conference.  If you're in the city on January 28th, you should definitely give this one some thought.     
 
Until next month...
 
Happy Alpha Hunting,
 
Christopher Holt, Managing Editor
AllAboutAlpha.com
[email protected]
 


Friday, Jan 15, 2010

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