High Water Marks Bring Yet Another Bias To Hedge Fund Returns

November 3, 2009

Survivorship and backfill bias in hedge fund returns have been written about extensively. A recent article in Hedge Fund Alert drew out attention to yet another problem with the reporting of hedge fund returns. It turns out that last year’s carnage has left so many hedge funds underwater that the returns posted for this year are not actually what you will earn if you are a new investor.

Hedge funds have high water marks so that managers do not receive the 20% performance fee until the fund has reached its prior high. That is one of the reasons why so many managers simply shut down their funds and launch new ones not subject to that constraint. But it also leads to difficulties with the reporting of returns. Performance fees Read the rest of this entry »

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Looking For Outperformance? Invest With An Emerging Manager!

June 1, 2009

An ill-advised, persistent and costly error among institutional investors and their consultants is their reliance on large brand name money management firms to look after their assets. We had the privilege of attending and speaking at the recent Emerging Manager 2009 conference, from where we return with some very persuasive statistics that show the outperformance of small money managers over the large mainstream firms. Read the rest of this entry »


Mark Fisher: Keep It Simple, Stupid

February 21, 2009

Mark Fisher, inventor of the technical trading method ACD, sees this market as a pure trading market in which analysis does not matter. This was probably not what some of Wharton’s students attending its first annual Wharton Hedge Fund Conference wanted to hear. After all, they have committed to spending a six figure amount on learning how to perform just that analysis. Fisher probably depressed also Wharton’s faculty whose livelihood depends on a steady supply of students willing to pay ever increasing tuition rates. Not to mention that Fisher himself holds a Wharton MBA. Read the rest of this entry »


An Evaluation Of The SEC’s Naked Short Selling Prohibition

August 14, 2008



So what exactly was the impact of the SEC’s July 15 emergency order against naked short selling? Not much, shows a study by Arturo Bris, a professor at Lausanne’s IMD business school. He shows that by some measures, it even had a detrimental effect on the market of the very stocks that the SEC sought to protect. For those who missed it, the list was:

Allianz Aktiengesellschaft (AZ), Bank Of America Corp (BAC), Barclays PLC (BCS), BNP Paribas (BNPQF/BNPQY), Citigroup Inc (C), Credit Suisse Group (CS), Daiwa Securities Group Inc (DSECY), Deutsche Bank Group AG (DB), Fannie Mae (FNM), Freddie Mac (FRE), Goldman Sachs Group Inc (GS), HSBC Holdings plc (HBC), JPMorgan Chase & Co. (JPM), Lehman Bros Holdings Inc (LEH), Merrill Lynch & Co Inc (MER), Mizuho Financial Gp Adr (MFG), Morgan Stanley (MS), Royal Bank of Scotland Group plc (RBS), UBS AG (UBS). Read the rest of this entry »