Interview in OpalesqueTV: ” Melvyn Teo, Singapore Management University, Director BNP Paribas Hedge Fund Centre “

From the page on the OpalesqueTV youtube channel. This is video from 2010, but I thought it still carries relevance and long-term logic:

Opalesque’s first CAMPUS series features Melvyn Teo, Associate Professor of Finance at Singapore Management University. Teo is also Director of the BNP Paribas Hedge Fund Centre at the Singapore Management University.

In this Opalesque CAMPUS, Teo shares his findings that hedge funds charging lower than average performance fees tend to have a higher liquidity risk, which will translate into problems for investors, when they try to pull money out of the fund. One example of such a problem is the “return impact” of redemptions, when the return of the fund tends to fall in the next month.

Teo also gives specific recommendations what investors can do to better understand the liquidity risk a fund may carry.

 

The fork in the Hedge Fund industry

Today I return here to Insight Corporation posts. This time with a nice, informative and helpful article in Financial Times about what is going on in the so often mysterious or misunderstood Hedge Fund industry.

To wit here they are some of the best  pasts from the article:

M&A arbitrage is a good example of a highly specialised hedge fund strategy that the “quants” now say they can mimic. “Arbs” place bets on whether corporate acquisitions will fail or succeed. When a company makes an offer for a rival, it will typically offer a premium price — but there is always a danger that the deal collapses, so the shares typically trade slightly below the offer price.

Skilled arb funds — typically stuffed with corporate lawyers, antitrust experts and former investment bankers — buy the shares of targets when they think the deal will go through, and short the ones where they think the deal will fizzle. The risk is in practice binary, and the better the fund, the more accurate its predictions.

Enough deals go through that even average M&A arbitrageurs should make money over time, as they capture what Mr Romahi calls the “deal failure risk premium”.

But quants now think they can do even better than simply systematically buying acquisition targets, by studying history for what deals go through and which fail, and automatically weighing their bets accordingly.

 

And the bifurcation in the industry appears to happen on different approaches and strategies. Some with the quant computer driven models and others just involving Human Intuition and business acumen. But is there really a battle of paradigms, or a diversity of ecosystems not mutually exclusive?:

But he has identified a multitude of factors that affect the M&A strategy’s success rate, using the same statistical techniques that doctors use to determine how long a cancer patient has to live.

As is often the case with quants, they are confident that their mathematical approach produces better results than human intuition. The traditional M&A arbitrageurs are “good but often not very accurate. Our model has actually proven more accurate than the arbitrage funds”, Mr Luo says.

M&A arbitrage is just one of many popular hedge fund strategies whose secrets quants say they are now deciphering. Others include global macro — betting on the ebb and flow of international interest rates and currencies — and even activist strategies pursued by the likes of Dan Loeb’s Third Point, Bill Ackman’s Pershing Square and Carl Icahn.

I will honestly bet that a somewhat healthy co-existence of all the strategies to be in the interests of everyone. An in academia sometimes the theoretical view isn’t so that far off reality:

While the quants have crunched their numbers through supercomputers their models for what works are based virtually entirely on “backtesting” against historical data. The financial crisis showed how a slavish adherence to modelling can spectacularly blow up in real-life markets, either immediately or eventually.

“I have very little regard for these hedge fund replicators,” says Robert Frey, chief investment officer at FQS, a fund-of-hedge funds and a quantitative finance professor at Stony Brook University. “They all fail miserably when the market regime shifts.”

 

I wish you all good trades and strategies: be they quantitative or intuitive!

” #Hedge #fund managers are arguably the celebrity chefs of the money management industry. They are best able to whip up…

Posted by Insight Corporation on Friday, February 19, 2016

Featured Image: BusinessWeek Slams “The Hedge Fund Myth”

 

Merger Arbitrage: the Puzzle Capital example

Opalesque TV – Backstage

Set up as a family office by renowned French hedge fund entrepreneurs, Jean-Louis Juchault and David Obert, Puzzle Capital launched the Abrax Merger Arbitrage Fund in 2011. The fund is managed by Xavier Robinson, a merger arb manager with a strong pedigree and extensive experience of the strategy over the last 20 years. Since launch in May 2011, the fund has had no negative years and has generated double digit annualized net returns. As of the end of November 2015, the fund is up 21% YTD. The fund will look to soft close at $350/400m and to hard close at $500m.

Xavier says the single most important aspect of merger arb is to avoid “deal breaks”, as it takes ten successful investments to make up the performance loss caused by one deal break. Xavier and his team have invested in over 600 deals, but have only experienced one (!) deal break since launch. This stellar track record is in part a team effort and also a reflection of Xavier’s deep skills in prop trading, portfolio management, and investment banking.

In this Opalesque.TV BACKSTAGE video, hear Xavier and Jean-Louis speak about: The criteria employed by Abrax to filter deals with examples of deals that were correctly avoided How the failed merger between SHIRE and ABBVIE in Oct. 2014 is still impacting markets today, contributing to pricing inefficiencies in spreads and creating attractive opportunities A review of Puzzle’s best month and worst months The strategy outlook for merger arb

Puzzle Capital was founded by Jean-Louis Juchault and David Obert in 2009 as their family office and is regulated by the AMF in France. The two have worked together since 1989 (as MD & CEO, MD & CIO) at Barep Asset Management, a $5bn multi-strategy hedge fund. In 2001 they co-founded Systeia Capital Management which they sold in early 2008 to Credit Agricole.

Xavier Robinson has managed the Abrax fund since inception and has extensive experience of merger arbitrage investing. Xavier started his career in 1995 with BNP and then worked with Citigroup, Lehman and Dexia as a proprietary trader, fund manager and M&A banker. Xavier holds a Civil Engineering Degree from the Ecole Supérieure des Travaux Publics and an MSc in Finance from ESSEC (Paris).

UCITS – the new brave world of Hedge Funds

The deeply interesting, if difficult and sophisticated Hedge Fund industry, is going through important changes. UCITS, the acronym for Undertakings for Collective Investment in Transferable Securities Directives, became the main staple for the industry in the European Union following the tremendous hard times of the 2007-2008 subprime Financial Crisis. I would like to join here with the Digital Edge a reproduction of a post in the Social Media Network LinkedIn Group discussion – UCITS for Hedge Funds – by connection Matthias Knab:

Founder of Opalesque, leading alternative investment news with 50,000+ readers

France is the second largest savings market in the world, right after the U.S. A real strength of the French market is the diversity of the industry and the number of entrepreneurial asset managers. Of the approximately 600 asset managers in France, two-thirds are small and medium sized, and some 30 asset managers are created and authorized each year. By the July 22nd 2014 deadline for implementing the AIFMD, the French regulator AMF expects to have 350 registered Alternative Investment Fund Managers (AIFMs.) in the country.

As a result of the Alternative Investment Fund Management Directive (AIFMD), most of the service providers have increased prices. Some smaller firms have decided to change service providers in order to react and cut costs. While European fund managers certainly appreciate the benefits of their European passport for cross-border marketing, tax issues remains as their most prominent concern, and probably the last hurdle to distribution in countries like the U.K. and Germany. Nevertheless, over time AIFs could potentially become as popular as UCITS both inside and outside of Europe.

Investors should be aware that European hedge fund managers don’t just only launch UCITS or Alternative Investment Funds (AIFs): according to ERAAM, European single hedge fund managers also launched 83 Cayman funds in 2013. However 89% of the AUM was within nine funds – certainly a very high concentration. New investor groups like U.S. based pension funds and others have started to discover European opportunities, offered by European managers, in sectors as diverse as:

– European equities
– European corporate credit and loans
– New fields like financial credit or in the management of liquidity buffers (HQLA)
– Smart Beta 2.0
– Securitization
– European distressed
– Investments with longer durations like real estate, infrastructure and infrastructure debt.

The Opalesque 2014 France Roundtable discusses those opportunities in-depth. The Roundtable was sponsored by Lyxor and Eurex and took place June 3rd 2014 at the Paris office of Lyxor with:

1. Natasha Cazenave, Head of the Asset Management Regulation Division, AMF
2. Denis Beaudoin, CEO, Finaltis
3. Olivier Kintgen, CIO, Eraam
4. Antoine Rolland, CEO, New Alpha Asset Management
5. Fabrice Dumonteil, CEO, Eiffel Investment Group
6. Paul Beck, Executive Director, Eurex / Deutsche Boerse Group
7. Christophe Baurand, Head of Alternative Investments, Lyxor Asset Management

The participants also discussed:

– What are the two opportunities European incubators see coming out of regulations?
– Why do European incubators love Asian managers?
– Who is driving the strong momentum of UCITS funds?
– What is the opportunity in long-term and SME financing?
– How European Market Infrastructure Regulation (EMIR) can lead to less risk and reduced costs
– What is the road to success for an emerging manager? Which mistakes can be avoided?

Download here for free: http://www.opalesque.com/RT/RoundtableFrance2014.html

Paris Roundtable discussed investment opportunities in Europe, fund launches from European hedge funds, how emerging managers can succeed, and important regulatory developments.

Matthias is Senior editor of publication Opalesque, which is a leading magazine about Alternative Investments.

Recent eVestment Data Detail Asset Distribution Among Global Hedge Funds

The link in this post relates to analysis of the global Assets Under Management (AUM) of the Hedge Fund industry done by Managed Funds Assotiation. Revealing the proeminence of the United States as the global leader in the asset class with 70% of the total AUM.

 

Recent eVestment Data Detail Asset Distribution Among Global Hedge Funds.

Weekly Roundup | Post-Trade Processing | 4 November 2013

This post from The OTC space with some of most important links for this week on the Swaps markets landscape for this week.

Noteworthy the growing importance and critical role of technological developments in Swaps Execution Facilities, as well as the overhaul on the regulation front.

A worthy contribution, as usual from The OTC Space.

 

Weekly Roundup | Post-Trade Processing | 4 November 2013.

via Weekly Roundup | Post-Trade Processing | 4 November 2013.