1X0/X0 and the hunt for African alpha
| May 1st, 2008 | Filed under: 130/30, Guest Posts | By: Alpha Male |
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Last September, we noted that hedge funds in South Africa and several other off-the-beaten-path places seemed to be holding up okay through the August storm. Now with gold prices flirting with all time highs, South African managers (hedge and long-only) seem to be attracting a lot of renewed interest. The April edition of Institutional Investor magazine shines a light on South Africa. Next week, Terrapinn will be hosting an “Alpha Beta Summit” in Cape Town. And last month HedgeWeek published a special report on the country’s hedge fund industry. HedgeWeek observed in an article published alongside the report that since March 2004, the South African hedge fund index had grown by nearly 20% per annum (vs. 12% for the MSCI World).
But is it really alpha?  To address this question for us, we welcome the following guest contribution from Helena Conradie of major South African money manager Sanlam Investment Management. Helena is the Head of Sanlam Investment Management’s equity quant boutique that manages over R21 billion. She is a CFA charterholder and has an MSc in Applied Mathematics Cum Laude from Stellenbosch University.
Special to AllAboutAlpha.com by: Helena Conradie, SIM Equity Quants
In just more than 18 months people all over the world will flock to South Africa to attend the world cup soccer event, paying generously to see amazing flair and display of talent. But would they consider South Africa as the location for amazing alpha?
At any given time there is a finite amount of alpha available for fund managers to hunt. And as we all know, it is “all about alpha!” The diversity of stock returns across all sectors (the cross-sectional volatility) is a good indication of the presence of alpha. So does the South African rainbow provide the alpha hunter with enough diversity?
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[...] Few active managers, even if they actually outperform their benchmarks, can overcome the expenses associated with doing so. The reason is not necessarily that they cannot do a good enough job of picking investments that can outperform, but that constrained to only going long they can’t make a big enough bet on what they like, or don’t like, to move the needle sufficiently! Here is a nice examination of this issue. [...]