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    Quick Course: 140 Years of Panics and Policy Should a lender of last resort lower interest rates to near zero in the hope that liquidity will drown systemic sorrows? Bagehot argues for a contrary approach. The interest rates for loans made to desperate borrowers should be high. “This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early…."

    In London, in May 1866, a banking panic began at 65 Lombard Street, the address of a discount bank, Overend Gurney. Overend (an ominous-sounding name for a financial institution to begin with!) had only just transformed itself from a partnership to a joint-stock company, making its books public in the process. At the time of the panic, Overend had been pursuing litigation for the recovery of a £60,000 debt. On May 9, a court held against it. The public discovered that the firm would have to write off that debt, and this datum proved the catalyst for a run.  On the afternoon of May 10, Overend suspended payments. This panic spread on May 11 to other banks and to the stock market. Further, it was not limited to London: spreading to Bristol, Derby, and the other great cities of Britain. But this particular panic, not especially unique out of all of history’s bank panics, is remembered not only for its city of origin but for its street address, and is remembered because ...

Featured Post


 Video: CAIA Conversations: John Ruffolo, CEO, OMERS Ventures


From Lynne Feldman, Director of Marketing at the CAIA Association: John Ruffolo, Chief Executive Officer of OMERS Ventures and Head of Knowledge Investing for OMERS Strategic Investments, discusses opportunities now and in the future for private equity, venture capital, and the benefits of a direct investing approach. Mr. Ruffolo spoke with Wendy L. Coleman, CAIA, CFA, FRM, Senior Advisor to the CAIA Association, in New York, NY. The series will continue in the coming weeks with interviews with other experts. We hope ...


 Video: David McMillan, CFA, Partner, Mercer Investment Consulting


From Lynne Feldman, Director of Marketing at the CAIA Association: David McMillan, CFA, Partner, Mercer Investment Consulting, discusses the role of consultants, risk management, trends in the hedge fund industry, and the need for education—now and in the future. Mr. McMillan spoke with Wendy L. Coleman, CAIA, CFA, FRM, in New York, NY. The series will continue in the coming weeks with interviews with other experts. We hope you enjoy this new video series, and please forward your comments so we can ...

Guest Posts


Alpha Hunters: The Macro View

By John Brynjolfsson, Armored Wolf The Armored Wolf investment team held its Secular Forum in late March. This is an annual opportunity to step back and discuss major themes in the upcoming investment environment. This was an effort to identify the dominant underlying forces likely to drive asset prices . Thorough discussion and analysis led us to the view that what best describes foreseeable market forces is the term “countervailing.” We see the backdrop of the global economy and markets dominated by: • Developed ...


Institutional Investing

Pensions, Inflation and Longevity Risk
The phrase “hybrid pension system,” as you might expect, refers to systems that can be categorized neither as defined contribution nor as defined benefit simply. This may involve for example risk sharing amongst employees, within or between generations of recipients, in the context of a collective defined contribution (CDC). The essential argument of this study, by Samuel Sender, Applied Research Manager at EDHEC, is that demographics will push both DC and DB plans to hybridize.

A new report begins with the now-familiar distinction between defined contribution and defined benefit plans, but rings some relatively novel changes on it. The EDHEC-Risk study, “Shifting Toward Hybrid Pension Systems,” supported also by AXA Investment Managers, begins in concern that pension funds “do not fully use their ability to diversify across asset types such as illiquid assets,” and that they face at least two key sorts of risk requiring a long time horizon. There is the risk of continued inflation, eating into the value of any defined benefits, or ...

Institutional Investing

Alpha Hunters: A Conversation with Peter Stein
New columnist Charles Skorina interviews Peter Stein, veteran alternative investments professional.

Editor's Note: We welcome Charles A. Skorina as a new columnist on AllAboutAlpha.com. He is the founder of Charles A. Skorina & Co., which is retained by the boards of institutional investors and asset managers to recruit chief investment officers, portfolio managers, and financial professionals. Charles Skorina earned an MBA at the University of Chicago and began his professional career at Chemical Bank (now JPMorgan Chase), completing the management training program then working as a credit and risk analyst in New York and Chicago.  After a stint with ...

Alpha Strategies

The Ultimate in High-Frequency Trading
Quite aside from the neat through-the-planet short-cuts they might allow: how fast is a neutrino? This turns out to be a very controversial matter. Last year, scientists working at CERN set off weeks of feverish speculation with reports indicating that neutrinos travel faster than light. If I understand this at all, it would mean if true that a New York or London trader could in theory accept a Tokyo trader’s offer before the offer had actually been made. Now that would be the ultimate in HFT: negative latency.

Consider that this summer ice-breaking and cable-laying ships are scheduled to create the first-ever fiber optic cables through the Arctic Ocean. There are supposed to be three such cables when the planned work is done: two on the Canadian and one on the Russian side of the pole. Each of these cables will connect Tokyo with London, and they are expected to shave 60 milliseconds off the time it takes for data to get from one of those cities to the other. My first thought in this connection was about news. If ...

Hedge Fund Operations and Risk Management

22 Years since Lamfalussy: Infrastructure Issues
Awkward and unexpected results from insolvency are among the legal risks to which inadequate financial market infrastructures (FMIs) can lead. There are also credit risks, liquidity risks, and in a future time of crisis or stress: contagion.

The Committee on Payment and Settlement Systems and the International Organization for Securities Commissions have jointly published a report, “Principles for Financial Market Infrastructures.” FMI, for these organizations, refers to the sum of the systems that facilitate the clearing, settlement, and recording of financial transactions. The CPSS-IOSCO report warns that if the systems involved are not up to their tasks, they could “pose significant risks,” and that FMI may prove a “source of contagion” in periods of great market stress. Along with this report, IOSCO and CPSS have published two consultation ...

Socially responsible investing

The Obvious Place to Look for Stable, Consistent Returns: African Trade Finance

by Doug Friedenberg We had the good fortune whilst we were in London to make the acquaintance of Nicolas Clavel, chief investment officer of Scipion Capital, a hedge fund that invests in financing imports and exports.  Not just any imports and exports, mind you. Imports and exports of commodities related to Africa. We asked Nicolas about the name Scipion.  Scipion was a Roman general who defeated Hannibal (the guy who crossed the Alps with the elephants), ...

Hedge Fund Regulation

Simplifying the JOBS Act for Alternative Investment Vehicles

By Ron S. Geffner, Partner, Head of Financial Services, Sadis & Goldberg LLP On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act, H.R. 3606 ("JOBS Act"). The JOBS Act requires the Securities & Exchange Commission ("SEC") to revise existing rules to implement many of the provisions of the JOBS Act. This article provides a brief overview of the key changes to the securities laws effectuated by the JOBS Act, which we expect ...

Risk management

EDHEC Survey: Contracts, Not Regulation, Should Clarify Restitution
The issue of restitution for loss has been very much on the midns of the asset management industry over the last four years. As EDHEC observes in its new report on non-financial risks, “The collapse of Lehman not only [showed] the world that a systemically large institution could fail; it put … the question of international cooperation and rules harmonisation on centre stage. Restitution may be rendered impossible, at least under reasonable delays, in extreme cases such as the default of an institution – reputable as it might have been.”

A new survey of more than 160 European fund management professionals by the EDHEC-Risk Institute finds that issues of restitution are much on the mind of participants in the industry, a legacy of Lehman’s notorious collapse in September 2011. But respondents aren’t enthusiastic about new regulation as a way of approaching this issue. The survey, “Shedding Light on Non-Financial Risks” concerns itself in general with liquidity, counter-party, compliance and misinformation risks within the fund industry – ...

Commodities

Was Managed Futures Tackled by Turbulence? When is Volatility a Friend or Foe?
Kathryn Kaminski tackles the tough question of volatility and how it affects managed futures.

By Kathryn M. Kaminski, Ph.D, CIO and Founder of Alpha K Capital. Lackluster performance in the Managed Futures sector in 2011 has certain investors asking tough questions. The most common of these is related to volatility and the fact that during last year's times of market turbulence CTAs seemed to struggle despite the fact that they are often sold under the tantalizing "long volatility" moniker. In a recent paper educational/thought piece for the CME Education Group, ...