Don’t Fear the Walking Dead
View Jim’s Paper Survivorship bias reflects an exclusive focus on survivors instead of a broader context that includes non-survivors. When we evaluate portfolios of investments using peer groups, survivorship bias can create an illusion that hinders our ability to make informed decisions. Other biases in such data sets (e.g., self-reporting bias or selection bias) can […]
The Pause That Refreshes
At the end of last year, the Federal Reserve quickly pivoted from its longstanding tightening narrative to a pause. With the U.S. economy still strong but slowing, the Fed said it needed “some time” to decide whether to raise or lower rates next. For most capital markets, that pause was indeed refreshing, as an old Coke […]
Co-Investments: Opening Doors of Opportunity
Co-investing with hedge funds is a chance for institutional investors to enhance returns while reducing overall fees
Hot Markets Go Cold Turkey
In chilling markets, the mix of volatile prices and tightening liquidity became too hot for many hedge funds to handle. And beset by negative betas in both traditional and alternative markets, all of the Callan Multi-Asset Class (MAC) Style Groups struggled in the fourth quarter’s risk-off mode.
Puttin’ on the Ritz … With Open Protocol
View Jim’s Paper Hedge funds and other multi-asset class (MAC) strategies with long and short exposures are a tough act to follow…at least for many fiduciaries investing in these strategies. To showcase their portfolios, managers often use a proprietary language that fits their unique strategy. Unfortunately, they then don’t sound like each other, making one […]
Hedge Funds Grind Ahead Amid Tightening Liquidity
The market environment for hedge funds offered conflicting signals in the third quarter. Despite weakening economic strength abroad, particularly in China, the U.S. economy marched stridently ahead, still energized by recent tax cuts and falling unemployment. Better-than-expected corporate earnings pushed up U.S. stocks, despite a marginally stronger dollar. Anticipating inflationary risks, the Federal Reserve pressed […]
Trade Spat Rains on Risk Parade
After celebrating U.S. tax cuts and deficit spending in the prior quarter, risk seekers tempered their buying enthusiasm in the second quarter when a global trade war threatened to crash the party. Casting shade on the growing but increasingly fragile global recovery, Trump’s posturing against China and other countries with U.S. trade surpluses caused non-U.S. […]
Making Cents of the Irrational With Options
View PDF Derivatives such as options enable investors to exchange specific market risks in their portfolios in much the same way homeowners who need fire insurance can purchase it from companies that pool risks to provide that coverage. In its basic form, an option contract gives the purchaser the right to buy (or “call”) or […]
Boy – That Escalated Quickly!
The market narrative of strong corporate earnings, falling unemployment, and tax reform had pumped up expectations for risk assets heading into 2018. However, hints that an overheated U.S. economy may be unable to absorb significant fiscal stimulus ahead spooked markets in the first quarter, leading to a spasm of risk-off behaviors. Despite the quarter’s rocky […]
Risk Takers See Less as More
While raw equity beta surged, hedge funds experienced positive but more modest results. Representing a paper portfolio of hedge fund interests without implementation costs, the Credit Suisse Hedge Fund Index (CS HFI) rose 2.3% in the fourth quarter. The median manager in the Callan Hedge Fund-of-Funds Database advanced 1.5%, net of all fees and expenses.