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Jay Singh is a finance enthusiast. Reading and blogging about finance in general and hedge funds in particular is both a passion and a professional way to find opportunities. Currently, Jay mainly advises on global private equity but previously managed publicly-traded instruments both for... More
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  • 2012: A Resounding Turnaround Year For Hedge Funds

    Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: 'There are three kinds of lies: lies, damned lies, and statistics.
    - Mark Twain

    Our headline might come as a surprise considering the negative new year coverage of hedge funds. CNBC opined Loeb, Cooperman Stand Out in Horrid Year for Hedge Funds, Forbes proclaimed Investors Are Sticking With Hedge Funds Despite Another Down Year, and WSJ nailed it with Hedge Funds Again Prove a Laggard.

    According to WSJ, "Hedge funds on average gained an estimated 5.5% in 2012, according to industry-tracker HFR … In comparison, the Standard & Poor's 500-stock index gained 16% for the year on a total-return basis." Moreover, the average hedge fund lost 5% in 2011.

    Just using this information, we arrived at our headline as the average hedge fund (being up 5.5%) in 2012 outperformed the average hedge fund (being down 5%) in 2011 by 220% and that is indeed a resounding turnaround for the 2 trillion dollar industry! (If you look at Forbes headline it is downright wrong to say "Down Year" and CNBC claiming a "Horrid Year" is, well, a matter of opinion.)

    The article in WSJ further elaborates: "Despite a few outsize performers, hedge funds lagged behind broader markets for the fourth year in a row, the longest period of underperformance since 1998, according to industry tracker HFR." To prove its point, the article has a chart showing the underperformance since 2009, and also shows the last year of relative outperformance in 2008 (Hedge Funds -19% vs. S&P 500 -38%).

    So we did a simple calculation: An investor plops down $100 in the S&P 500 and another investor $100 in the HFR Hedge Fund Average in Jan 1, 2008. Who comes out ahead at the end of 2012?

    The hedge fund investor comes ahead by 99 cents (cannot make this stuff up).

    We realize there are subtleties (such as survivorship bias and risk-adjusted returns, to name a couple) that we have not taken into account that could favor the hedge funds or the market index. But our intention here is not to offer conclusive research, just show how misleading headlines can be (including ours?).

    For a more objective look at the winners (unfortunately that can mean in 2012 the likes of Baupost Group not being included) we recommend Bloomberg's 100 Top-Performing Large Hedge Funds. The returns are for the 10 months ending on October 31, 2012, and will be updated for the full 2012 in February 2013. Until then we recommend the writings of Mark Twain.

    Tags: Hedge Funds
    Jan 08 4:45 PM | Link | Comment!
  • Ray Dalio: Long Australian Agricultural Property Now, Short Bonds … Sometime In 2013

    In New York Time's Dealbook conference in NYC, Ray Dalio of Bridgewater Associates, the largest hedge fund with assets hovering around 140 billion dollars, sat in a panel to briefly talk about the macro picture and investment opportunities.

    As per his earlier view, the global economy still is in the midst of the Great Deleveraging (a phrase he coined himself).

    While most of risk premium in any assets has virtually disappeared, he sees some current opportunities where risk premiums still can be squeezed and others in the horizon (but not imminent).

    On the opportunity where risk premium has not been completely squeezed out today, Mr. Dalio recommends Australian Agricultural Properties. He does not mention any others.

    As for the best upcoming investment, he predicts that interest rates (which are currently negative in terms of real returns) will rise towards the end of 2013 and "The biggest opportunity will be shorting bond markets around the world".

    The panelist praised Mr. Dalio for being right about the US Financial crisis of 2008 and then also being spot on about the Eurozone debt crisis, and then dared "if you could pinpoint the turn in interest rates, then you are truly a genius".

    Either out of modesty, or respect for reversion-to-mean, or nod to his lackluster performance year-to-date, or good ole hedge-fund secrecy, Mr. Dalio retorted: "I am probably due for missing that".

    Dec 17 5:36 PM | Link | Comment!
  • Largely Un-American: British Tiger Cub Hedge Fund's Economist Takes A Quant World Tour

    A must-read from Dr Savvas Savouri of London-based Toscafund Asset Management: Toscafund Economics November 2012 Issue 17 - Largely un-American.

    The issue begins with the following statement about UK economy being perceived as worse than it is:

    "There is something uncannily similar in what politicians have to say about the economy they govern or would like to, with what a mechanic has to say about a car he is repairing, or would like to. It is invariably in need of work and invariably lots of it. It is quite frankly the theory of fear creating a need, even where there is nothing wrong."

    It makes stops at France ("Why does France over-rate itself?"), Latin America ("Latin Lessons"), Japan ("Turning Japanese"), Russia ("Georgia on my Mind"), Ireland ("Drinking to an Irish Recovery?), among others. Truly global and insightful with a much-needed sense of humor.

    As way of background:

    Dr. Savvas is a graduate of the London School of Economics, with bachelors (1987), Masters (1988) and Doctoral (1993) degrees in econometrics and mathematical economics. Dr. Savvas has taught widely including lecturing in statistical modelling at Oxford University.

    He is also the founder of QuantMetriks, over recent years has headed quant teams at various investment banks and is now Chief Investment Officer of the Metriks funds at Toscafund where he is a partner and Chief Economist.

    QuantMetriks is a multi-geography dis-aggregator of monthly economic data. Using disciplined but not overly complicated data collection and analytical techniques, it produces detailed signals of the earnings performance at the product level, doing so in sufficient detail to map to the corporate world. The process allows for an equity long short investment strategy that needs neither contact with managements or analysts; the ToscaMetriks fund has been live since 2007.

    Toscafund Asset Management was co-founded in London by Martin Hughes in 2000 when he left Tiger Management. Most of their funds are long-short equity and they manage over $1 billion.

    Nov 27 1:50 PM | Link | Comment!
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