Sports hedge fund? Unlike stocks, bonds, real estate and commodities, sports results do not depend on economic factors. Sports bets offer arbitrages and mispricings like "efficient" financial markets. Find alpha in stocks, bonds, commodities, currencies or sports? Diversification of uncorrelated returns is the way to go. Focus on building return streams from ALL alpha producers.



Michael Jordan, Wayne Gretzky, Babe Ruth, Pele and the greatest sportsperson ever, Donald Bradman, were just lucky flukes like hedge fund managers Jim Simons, George Soros, Warren Buffett, Jesse Livermore and Munehisa Homma? Buy every stock because it's "impossible" to find good ones in advance. There are no good sportspeople just lucky ones? No such thing as talent and dedication?



How many teams would win if managers just randomly chose players from the phone book? Skill is necessary to win in any business. ...

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Hedge fund due diligence? Amaranth? Some "experts" even blame investors for pushing Amaranth to take higher risk but that is nonsense. Maybe I consult in the wrong circles but the fiduciary institutions I deal with want a reliable +10% not ± 50% maybe. There was none of the widely predicted contagion as proper hedge funds either were not affected or benefited. As in 1998 with LTCM the demise of an incompetent firm created massive alpha capture opportunities for the skilled. Hedge funds are dead. Long live hedge funds. Here are ten due diligence issues regarding Amaranth.



1. What it said on the packet versus real contents. Amaranth was clearly not what it marketed itself as. Multistrategy is inconsistent with having 55% of the fund in what was, effectively, one trade. Hedge fund regulation would NOT have prevented this. Soon Nick Maounis and Brian Hunter will be on the road trying to raise money for their new "hedge funds". Securities markets have perfect memory but ...

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Amaranth rookie trader Brian Hunter was paid well for just riding energy beta. Unfortunately for Amaranth clients, that LUCK ran out with $6 billion lost through his incompetent speculation on natural gas prices. "Multistrategy" turned out to be a single bet on a very volatile spread. There never was any skill even in the good times. Highly concentrated gambles by inexperienced fools was not what Amaranth's marketing materials said. Though my clients were repeatedly pitched by Amaranth, I always advised them to avoid it. Yes you can detect non-skill in advance if you have the right experience.



What kind of investment process is "Many hurricanes last year so lots this year. Let's bet the fund"? Or "I gamble the next five winters will be colder than the market expects"? What happened to the basic rules of trading? Diversification, hedging, risk management, position sizing. Even rookie traders know not to have more than 2% of NAV at risk in any one position no matter what ...

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Hedge fund alpha? Alpha dog or beta dinosaur? In canine circles alpha refers to the top dog. The top dogs in the investment world are the alpha generators not beta bandits. There is no connection between AUM and fund quality and a big hedge fund is often a very bad investment compared to a top hedge fund. But regardless of size, St. Bernard or Chihuahua, how to identify alpha dogs?



The main reason to put money into hedge funds is RISK-ADJUSTED performance. If you are certain of a bull market there is no need to put money in hedge funds. Beta from index funds is all that an investor requires assuming they can stomach the risk which I certainly can't. Isolating and measuring alpha can also be difficult. Past betas and alphas are unstable and do not necessarily carry predictive information on the future.



Absolute returns can't always be considered alpha. In fact many alphas are negative after looking at the risks and factor exposures taken to generate that ...

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Hedge fund exam? It's always amazed me how other industries have reasonably tough tests of basic professional knowledge - doctors have MDs, lawyers have bar exams, pilots to fly planes. But finance just has easy tests like CFA, CAIA, Series 7, Series 66, CIMA, CFP etc.



Not surprisingly the world's top investors typically have none of them, favoring practical experience. Name anyone that learnt to drive, cycle or swim from a book. Nobel prize "winners" in economics are infamously negatively correlated with common sense and financial acumen.



It's time for the Hedge Fund Test. To assess the 0.01% who do and the 99.99% of financial professionals who don't have what it takes to succeed in running a hedge fund.

Clients are priority. Working with and advising individuals and institutions on their investments has always been my core skill so I'll be focusing on doing my best for existing and new clients. I hope you found Hedge Fund Blog informative.



Clients have ranged in asset ownership from $188,000 to $300 billion. A lot of what I do is assessing investment consultants, fund managers and financial products and when necessary recommending changes. I also design master portfolios for specific asset/liability needs.



The philosophy is simple. Deliver substantial value. Skill is the only investment grade asset. The biggest bull market is the growth in demand and need for quality financial advice. Don't accept the average in anything.



Finance offers a big data set to analyze. As a data scientist by background, it's my job to help clients differentiate vast noise from rare ...

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Long only hedge fund? Brand extension is smart but brand destruction is dumb. What if Ferrari entered the horse and cart industry, Apple manufactured tape recorders, Amazon opened bookshops on main street and Google started delivering snail mail? Weird? Investors want absolute returns, risk management and financial innovation so why would a TRUE hedge fund manager retreat to archaic long only?



MOST stocks go DOWN over time! No shorts means no hedge. Long only is not sufficiently diversified. Hedge fund firms that set up long only funds commit commercial suicide. Don't fall for the "unconstrained" monicker. Unconstrained applies only to the LOSSES they WILL deliver. I'm advising my institutional clients to avoid ALL long/short products offered by firms that set up long only vehicles. Far too risky.



Long only is just an asset gathering ploy by weak hedge funds that failed at long/short. I've been investing in absolute return strategies for a long time. ...

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Hedge fund manager, a traditional relative return fund and a passive professor are flying north to present to an institutional investor in New Zealand. As the hedge fund manager's private plane lands they see one purple sheep in a field.



Index idol says "Every kiwi sheep is purple! I must buy them all now. At any price the farmer asks no matter how expensive. No need for analysis or due diligence. The market is always right because it's efficient. It's not my money anyway. I have academic tenure and a Nobel prize. Risk free...for me."



Long only luddite says "Some kiwi sheep are purple but the professor says they all are and I am benchmarked to the index so I must buy also. Can't risk my tracking error. It's not my money either. I get paid whether clients win or lose."



Hedge fund blog says "All my money and my family and friends' money is in the fund so I analyze potential investments more closely. The endowment that pays the professor is ...

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Nobel prize? Pricing options is difficult but finding dumb Nobels is easy. The 1997 award to Myron Scholes and Robert Merton and that is with the bar set very low in a dismal field. The Black-Scholes formula has led to many problems for investors but is still used to misvalue options. Fake "Nobels" are more 1960s economics lunacy that must be put out of its misery. Urgently.



The Nobel Endowment shrewdly refuses to pay for a prize in economic "sciences" so Swedish taxpayers take the hit. Merton and Scholes are to financial engineering what the Titanic was to marine engineering. Neither would have survived the rigorous hard sciences but in soft economics they are superstars despite over 40 years of staggering incompetence! Tenure has been a heavy cost on alumni contributions paying for their "learned" presence.



It devalues legitimate Nobels to let such an error stand. As REPLACEMENTS and for their roles in demolishing the delusional dogma of efficient ...

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David Swensen manages a fund of funds for the Yale endowment. Bizarrely he says he hates funds of funds so why hasn't he quit? He also has a new book out called Unconventional Success but a better title would be Unconventional Luck. If Swensen truly believes his comments on hedge funds then we can safely conclude that his returns were due to luck not skill. Alternatives are ESSENTIAL for Yale's portfolio but apparently not for yours. He loves high risk illiquid leveraged long only for people as "clever" as he thinks he is but the unwashed masses should make do with index funds! The coming bear market will reveal how "smart" Swensen really is.



The so-called "endowment model" is too risky for endowments. Swensen's TRUE risk-adjusted performance has been terrible. Almost all his "outperformance" has been due to leveraged beta NOT alpha. He takes far more risk than is prudent. Swensen deserves some credit for seeing earlier than his "peers" the need for alternatives so why ...

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