Browsing: Risk management

Risk management

Liquidity: Running for the Exits

Aug 15th, 2019 | Filed under: Newly Added, The A.I. Industry, Risk management, Hedge Funds, Other Issues in Private Investments, Risk Management Strategies & Processes, Risk Management & Operations

Liquidity vanishes when you need it most. That isn’t an especially original observation. It’s like saying that the exit doors are always jammed precisely when you need a quick exit quickly. Amin Rajan gives us a forceful statement of this point inspired by the “current travails at Woodford Asset Management.”Read More


Active Risk Budgeting Gets Consistent Alpha

Jul 28th, 2019 | Filed under: Newly Added, CAPM / Alpha Theory, The A.I. Industry, Financial Economics Theory, Risk management, Risk Metrics and Measurement, Risk Management Strategies & Processes, Risk Management & Operations, Finance & Economics

A new paper takes an experimental look at “Active Risk Budgeting,” a method of portfolio construction that looks to build upon older and sometimes passive risk budgeting approaches, adding enough active management to allow the risk budget to change over time. For example, an institution might want its risk budgetRead More


Ramping Up a PE Allocation Over Time

Jul 21st, 2019 | Filed under: Newly Added, Private Equity, The A.I. Industry, Debt Types of Private Equity, Risk management, Equity Types of Private Equity, Private Investments, Risk Management Strategies & Processes

Many investors with long horizons are increasing their allocation to private equity funds: to extract the gains from managerial skill in that field, to reap the illiquidity premium, and simply to diversify. TIAA Endowment & Philanthropic Services has put out a paper on the creation and maintenance of a privateRead More


One Year Left to Run on Critical No-Action Letters for Investment Managers

Jul 18th, 2019 | Filed under: Newly Added, The A.I. Industry, Risk management, Business News, Risk Management Strategies & Processes

The Securities and Exchange Commission issued three no-action letters on the issue of research payments, in light of developments on that issue in Europe in 2017. Specifically, they dealt with the cross-border of Europe’s rules (MiFID II), which were scheduled to take effect, and which did take effect, on Jan.Read More


Fixing the Sharpe Ratio: A Machine Learning Approach

Jun 16th, 2019 | Filed under: Newly Added, Performance, Analytics & Metrics, The A.I. Industry, Risk management, Benchmarking & Performance Attribution, Hedge Funds, Risk Metrics and Measurement, Risk Management Strategies & Processes

The Sharpe ratio has long served as a simple but important item in the due diligence tool kit. Formulated by William F. Sharpe in 1966 and first called the “reward to variability” ratio, the number arises from an investment’s rate of return minus the risk-free rate divided by the standardRead More


Accommodating Ambiguity Aversion in Portfolio Modeling

May 14th, 2019 | Filed under: Newly Added, Performance, Analytics & Metrics, The A.I. Industry, Risk management, Risk Metrics and Measurement, Risk Management Strategies & Processes

By standard definition, “ambiguity aversion” is the preference for known risks over unknown risks, the known unknowns over the unknown unknowns. A recent paper discusses the portfolio-level consequences of this aversion. The paper, written by Valery Polkovnichenko and Hui (Grace) Wang, explains that for an ambiguity-neutral investor, “adding active portfolio withRead More


Oak-and-Tree and Larry Grows… 

Mar 25th, 2019 | Filed under: Newly Added, What about beta?, Risk management, Risk Management Strategies & Processes, Allocating to A.I.

By Bill Kelly, CEO, CAIA Association The adaptation to this week’s title harkens back to late 19th century Scotland where this was a play song more popularly known as “Oats and Beans and Barley Grow.” It was a song of action in a time and a place—where most of the wakingRead More


BLACK SWANS, MAJOR EVENTS & FACTOR RETURNS

Mar 24th, 2019 | Filed under: Newly Added, The A.I. Industry, Risk management, The Global Economy & Currencies, Economics, Risk Management Strategies & Processes, Macroeconomics, Finance & Economics

By Nicolas Rabener of FactorResearch INTRODUCTION Investors fear black swan events, although it can be argued that this fear is irrational. The black swan theory is a metaphor that describes a surprise event that has a major impact and is often rationalized with hindsight. A recent example would be theRead More


Algorithms Moving into the Bond Markets

Mar 17th, 2019 | Filed under: Newly Added, Algorithmic and high-frequency trading, The A.I. Industry, Risk management, Risk Metrics and Measurement, Risk Management Strategies & Processes

Algorithmic trading may fairly be said to have conquered the public equities world, although there are still pockets of resistance and related controversies. The robots have now turned their attention to the bond markets. Bond markets are different from stock markets in a lot of ways, and many of theseRead More


Assessing Risk Measurement for a Portfolio of Hedge Funds

Jan 27th, 2019 | Filed under: Newly Added, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Hedge Fund Strategies, The A.I. Industry, Risk management, Technology, Hedge Funds, Risk Metrics and Measurement, Risk Management Strategies & Processes, Structure of the Hedge Funds Industry, Risk Management & Operations

Two scholars, Shubeur Rahman and Ranjan Bhaduri, have in a new paper taken a fresh look at a long-standing dilemma in the alternative investments industry. The question is: how should investors in hedge funds (especially in a multi-asset class, multi-strategy portfolio of hedge funds) measure the market risk inherent inRead More


Risks & Rewards: The Future of Finance in Blockchain

Jan 6th, 2019 | Filed under: Newly Added, The A.I. Industry, Risk management, Technology, Operations, Emerging Alternative Investments, Digital currencies, ETFs, Smart Beta, Risk Management Strategies & Processes, Risk Management & Operations, Other Topics in A.I.

A new article by Dave Dowsett and Heather Wied, both of Invesco, looks at blockchains and the way this new technology, precisely as it divorces itself from its original significance as a feature of the cryptocurrencies, is ready to transform finance. Dowsett and Wied contend that blockchain “offers the possibilityRead More


Leveraging and Enhancing Catastrophe Models

Dec 27th, 2018 | Filed under: Newly Added, The A.I. Industry, Risk management, Operations, Emerging Alternative Investments, Risk Metrics and Measurement, Risk Management Strategies & Processes, Risk Management & Operations, Other Topics in A.I.

I write these words soon after reading the news from Sundra Strait, Indonesia. In recent days, the eruption and collapse of a volcano there has set off a tsunami that in turn has devastated the coastal regions of Banten and Lampung, also in Indonesia. Much time may have to passRead More


Steamrollers, Geniuses and Market Crashes

Nov 27th, 2018 | Filed under: Newly Added, Hedge Fund Operations and Risk Management, The A.I. Industry, Risk management, Operations, Hedge Funds, The Global Economy & Currencies, Risk Management Strategies & Processes, Relative Value Hedge Funds, Risk Management & Operations, Finance & Economics

McGraw Hill Education has brought out a new book by Bruce I. Jacobs, of Jacobs Levy Equity Management. The book, Too Smart for our Own Good, concerns “ingenious investment strategies, illusions of safety, and market crashes.” The thesis is that the financial crises of recent decades are the consequence ofRead More


EY Reports on Alternative Investments and Artificial Intelligence

Nov 13th, 2018 | Filed under: Newly Added, Hedge Fund Industry Trends, Private Equity, Hedge Fund Strategies, The A.I. Industry, Risk management, Hedge Funds, Private Investments

The twelfth annual report of what used to be known as the EY Global Hedge Fund Survey has been re-christened the EY Global Alternative Fund Survey. As it has under the earlier name, EY again records the views of fund managers and investors around the globe on a wide rangeRead More


Panayiotis Lambropoulos: The View from a Public Pension Manager’s Office

Nov 11th, 2018 | Filed under: Newly Added, Hedge Fund Operations and Risk Management, The A.I. Industry, Due Diligence Process, Institutional Investing, Alpha Hunters, Risk management, Asset allocation, Hedge Funds, Asset Allocation Models, Alternative Investments in Context, Institutional Asset Management, Risk Management Strategies & Processes, Risk Management & Operations, Allocating to A.I.

On Nov. 13, the 24th Annual National Pension and Institutional Investment Summit convenes in Dallas Texas. CAIA is a sponsor of this event. Panayiotis Lambropoulos, portfolio manager of hedge funds at the Employees Retirement System of Texas, will offer his insights at a panel on emerging hedge fund managers. Lambropoulos’Read More


Avoiding Over-Allocation to Alternative Investments

Nov 6th, 2018 | Filed under: Newly Added, Private Equity, The A.I. Industry, Institutional Investing, Risk management, Asset allocation, Hedge Funds, Asset Allocation Models, Risk Metrics and Measurement, Institutional Asset Management, Private Investments, Risk Management Strategies & Processes

A new white paper from New York Life looks at the role of alternatives in portfolio construction and argues that usual risk-return based approaches can underestimate risk and lead to over-allocation to the alternatives. The paper, by Amit Soni, an NYL portfolio manager, proposes a new method “to quantify performanceRead More


Quantifying High Performance Dispersion Risk in Alternatives

Oct 24th, 2018 | Filed under: Newly Added, Performance, Analytics & Metrics, The A.I. Industry, Alpha & Beta, Institutional Investing, Risk management, Asset allocation, Asset Allocation Models, Risk Metrics and Measurement, Institutional Asset Management, Risk Management Strategies & Processes, Risk Management & Operations, Allocating to A.I.

By Amit Soni, Portfolio Manager, Strategic Asset Allocation, New York Life Investments Lofty valuations in traditional assets have encouraged investors to explore alternatives. Unfortunately, the lack of a holistic investment framework to incorporate alternatives poses a challenge. Traditional risk-return based approaches, alone, over-allocate to alternatives–a result of underestimation of risksRead More


A Brief History of Asset Allocation

Oct 16th, 2018 | Filed under: Newly Added, CAPM / Alpha Theory, Algorithmic and high-frequency trading, Hedge Fund Strategies, The A.I. Industry, Financial Economics Theory, Risk management, Crowdfunding, Hedge Funds, Emerging Alternative Investments, Risk Metrics and Measurement, Business News, Risk Management Strategies & Processes, Finance & Economics, Other Topics in A.I.

Glassbridge has put out an ambitious white paper about the “evolution of asset allocation across the investment management industry,” one that begins with the basics of the Capital Asset Pricing Model and ends with quantitative analysis and crowdsourcing. The premise is that new strategies, and new ranges of data, areRead More


Goldman Sachs Equity Hedge Fund Report Deep Dives 13Fs

Oct 7th, 2018 | Filed under: Newly Added, Hedge Fund Industry Trends, Hedge Fund Strategies, The A.I. Industry, Equity Hedge Funds, Alpha Strategies, Risk management, Hedge Funds, Risk Management Strategies & Processes, Structure of the Hedge Funds Industry

Working from a database drawn from 13F filings, authors of a new report from Goldman Sachs Asset Management maintain: (1) hedge funds tend to overweight equities in three markets: information technology, consumer discretionary, healthcare; (2) quarter-on-quarter turnover for equity hedge funds’ portfolios is limited; and (3) a long-only sample portfolioRead More


The Connection between Audit Fees and Derivative Hedging

Sep 11th, 2018 | Filed under: Newly Added, Hedge Fund Operations and Risk Management, The A.I. Industry, Risk management, oil, Commodities, Commodities: Examples, Risk Management Strategies & Processes

It is generally acknowledged that there exists a positive association between business risk and audit fees. There is room for dispute as to what that means. On the one hand, the riskier clients for whom an audit firm works might simply be the ones that have the most complicated books,Read More


Hedging or Trading? Why Italian Banks Use Derivatives

Aug 23rd, 2018 | Filed under: Newly Added, Derivatives, The A.I. Industry, Risk management, Hedge Funds, Credit Derivatives, The Global Economy & Currencies, Commodities, Economics, Institutional Asset Management, Risk Management Strategies & Processes, Risk Management & Operations

A recent report by the Bank of Italy looks at why the various banks of Italy use derivatives. Specifically, the central bank of that country wanted to know: is it a matter of hedging? Or is it a matter of keeping a proprietary book? Hedge fund managers and other pursuersRead More


Kurtosis Diagnosis: Don’t get Skewed!

Aug 20th, 2018 | Filed under: Newly Added, What about beta?, The A.I. Industry, Risk management, Risk Metrics and Measurement, Risk Management Strategies & Processes

By Bill Kelly, CEO, CAIA Association The quote “what gets measured gets managed” is oft-times attributed to the author and consultant Peter Drucker. The origin is less significant than its modern-day meaning and, while it is most often used in the context of business management, it ports quite well into the management ofRead More


Volatility Arbitrage and Cross-Border Options

Jul 29th, 2018 | Filed under: Newly Added, Hedge Fund Strategies, Investing in Commodities, Alpha Strategies, Risk management, Hedge Funds, Commodities, Macro and Managed Futures Funds, Risk Management Strategies & Processes, Risk Management & Operations

A new paper, by Adriano Tosi, of the University of Zurich, Switzerland, looks at the mispricing of a cross-section of international option returns, which suggests that there is money to be made (in more decorous language a “positive risk premium” may be “commanded,”) by selling exchange-traded products and buying theRead More


Using the Variance Risk Premium to Predict Futures Markets

Jul 15th, 2018 | Filed under: Newly Added, Commodities, Hard metals, Risk management, oil, Commodities, Risk Metrics and Measurement, Commodities: Examples, Energy, Risk Management Strategies & Processes, Gold

A new study of volatility in commodity prices indicates that both the total and the decomposed variance risk premiums of at least certain commodities markets contain information with predictive power. The variance risk premium is the pay-off of the synthetic variance swap contract. Specifically, it’s the difference between the floatingRead More


Greenwich Associates on Exchange-Listed Options

May 22nd, 2018 | Filed under: Newly Added, Risk management, Risk Metrics and Measurement, Risk Management Strategies & Processes, Risk Management & Operations

Greenwich Associates has produced research, commissioned by the Options Industry Council, about the way institutional investors understand exchange listed options. Greenwich concludes that underperforming institutions, including pension plans and endowments, “should be considering investments in options strategies as a means to improve risk-adjusted returns.” Institutions not currently doing so mayRead More


Why Treasury Professionals are Building Cash Reserves

Mar 25th, 2018 | Filed under: Newly Added, Risk management, Risk Metrics and Measurement, Risk Management Strategies & Processes, Risk Management & Operations

The Association of Finance Professionals recently disclosed, via its Corporate Cash Indicators, that U.S. corporations accumulated more cash in the third quarter of 2017 than had been anticipated. This is consistent with other indications: corporations are concerned about the risks of the present environment and are working to ensure theyRead More


News from AIMA: Performance and UK Regs

Feb 27th, 2018 | Filed under: Newly Added, Risk management, Hedge Funds, Risk Metrics and Measurement, Risk Management Strategies & Processes, Risk Management & Operations

New research by the Alternative Investment Management Association (AIMA), in collaboration with Preqin, indicates that hedge funds have produced “more consistent and steadier returns than equities or bonds over both the short term and the long term.” The study employed four scales of time: one year, three, five, and 10Read More


EIU on Institutions and Time Horizons

Oct 19th, 2017 | Filed under: Newly Added, Institutional Investing, Risk management, Institutional Asset Management, Risk Management Strategies & Processes, Allocating to A.I.

With the  sponsorship of Franklin Templeton, The Economist Intelligence Unit (EIU)  has surveyed  143 investing institutions in North America (part of the global sample of 571) in order to study recent shifts in their portfolio allocation, especially with an eye to the risks that concern them and the length ofRead More


Below the Black: A Review of Risk Reduction Strategies

Sep 13th, 2017 | Filed under: Newly Added, Commodities, Hedge Fund Strategies, Investing in Commodities, Risk management, Hedge Funds, Commodities, Risk Metrics and Measurement, Macro and Managed Futures Funds, Risk Management Strategies & Processes, Risk Management & Operations

Excerpted from the Alternative Investment Analyst Review, Volume 1, Issue 4 The Alternative Investment Analyst Review is the official publication of the CAIA Association. Access to the most current issue is an exclusive benefit of CAIA Membership while archived issues are available to the public in the Perspectives section atRead More


Transparency in Alternative Investing

Aug 24th, 2017 | Filed under: Newly Added, Risk management, Risk Management Strategies & Processes

In February of this year, the Economist Intelligence Unit surveyed 200 senior asset managers and institutional investor executives to learn what factors are most important in the way they make their decisions. Several different types of institution were involved, including hedge funds, private equity firms, insurance companies, and nonprofits. Also,Read More


New Numbers on Catastrophe Bond Insurance

Jun 27th, 2017 | Filed under: Newly Added, Risk management, Structured Products, Risk Management & Operations

A new report from an Alternative Risk Transfer research service, Artemis, looks at the catastrophe bond and insurance-linked securities market in the (recor- breaking) first quarter of 2017. Bond and ILS issuance reached the unprecedented level of $2.76 billion this Q1. That involved 25 tranches of notes from 14 deals,Read More


Academics:  No, Navinder Sarao Did Not Cause the Flash Crash 

Oct 25th, 2016 | Filed under: Newly Added, Hedge Fund Operations and Risk Management, Algorithmic and high-frequency trading, Risk management, Technology, Operations, Personalities in AI, Business News, Risk Management & Operations, Finance & Economics

Mid-October news reports tell us that Navinder Sarao has lost his effort to avoid extradition from Britain to the United States. So he will face charges in the U.S. in connection with the “flash crash” of May 2010, the incident in which the DJIA fell 998.5 points in less thanRead More


Why are Bank Stress Tests like Student/Instructor Evaluations?

Aug 15th, 2016 | Filed under: Newly Added, Risk management, Risk Management Strategies & Processes

Two scholars affiliated with Columbia University have contributed to the ongoing discussion of Federal Reserve stress tests and their consequences in an article in the Journal of Alternative Investments. Stress tests have become a big part of the U.S. regulatory scene since 2009, with the creation that year of theRead More


How Risk Management Resembles Meteorology: A White Paper

Jun 12th, 2016 | Filed under: Newly Added, Hedge Fund Operations and Risk Management, Risk management, Risk Management Strategies & Processes, Risk Management & Operations

A new white paper from Campbell & Co. discusses the negative skew that is often a characteristic of portfolio returns, and the ways in which trend following can achieve positive skew instead. The paper is effectively advertised by its title, “Taming of the Skew.” The authors begin with distinctions amongRead More


Best Practices for Private Equity Sponsors in an Age of Increasing Scrutiny

May 23rd, 2016 | Filed under: Newly Added, Performance, Analytics & Metrics, Private Equity, Risk management, Benchmarking & Performance Attribution, Other Issues in Private Investments, Private Investments, Risk Management Strategies & Processes

By John Czapla, Parag Patel and Shane Newell, Valuation Research Corporation As the demand for transparency rises for private equity and hedge funds, the spotlight is increasingly focusing on valuation practices. There are an important number of reasons why the valuation process has become important, and they are essential forRead More


Credit Derivatives in China: A 2014 Presentation Recalled

May 19th, 2016 | Filed under: Newly Added, Risk management, Risk Management Strategies & Processes

The People’s Bank of China launched two seemingly important products in 2010: the Credit Risk Mitigation Agreement and the Credit Risk Mitigation Warrant. I refer to them as “seemingly” important because they addressed a large issue in a vast economy, and did so in what seemed to many a commendablyRead More


Risk Management & the Trouble with Capacity-Driven Decisions

Apr 28th, 2016 | Filed under: Newly Added, Investing in Commodities, Risk management, Commodities, Risk Management Strategies & Processes, Risk Management & Operations

A recent CAIA member contribution by Kathryn Kaminski, director of investment strategies at Campbell & Co., discusses the quantification of CTA risk management.  It is worth a look, not least because it amounts to a warning about how underperformance can result for the re-jiggering of allocation for capacity constraints. KaminskiRead More


Andrew Lo: Progress is the Platform for Ever-Changing Risk

Feb 28th, 2016 | Filed under: Newly Added, Risk management, Partner accounting, Risk Management Strategies & Processes, Risk Management & Operations

Andrew Lo, of the Massachusetts Institute of Technology, recently wrote a stimulating discussion of two seemingly contrary “laws”: Moore’s and Murphy’s. Read More


For Practitioners of Risk Parity: Don’t Panic

Dec 6th, 2015 | Filed under: Newly Added, Hedge Fund Operations and Risk Management, Risk management, Risk Management Strategies & Processes, Allocating to A.I.

A new paper by Cliff Asness puts the recent relative weakness of Risk Parity Portfolio performance into a broader context. The cumulative excess return from what he calls "simple risk parity" continues to rise steadily though undramatically. Read More


For Practitioners of Risk Parity: Don’t Panic

Oct 6th, 2015 | Filed under: Newly Added, Risk management, Asset allocation, Benchmarking & Performance Attribution, Asset Allocation Models, Risk Management Strategies & Processes, Allocating to A.I.

A new paper by Cliff Asness puts the recent relative weakness of Risk Parity Portfolio performance into a broader context. The cumulative excess return from what he calls "simple risk parity" continues to rise steadily though undramatically. Read More


Foundations: They’ve Taken a Blow from “Subdued” Markets

Sep 2nd, 2015 | Filed under: Hedge Fund Industry Trends, Performance, Analytics & Metrics, Hedge Fund Strategies, Institutional Investing, Indexes, Risk management, Liquid Alts

Both private and community foundations depend heavily on U.S. equities. Indeed, domestic equities remained the bright spot while other strategies underperformed in 2014. A new report from a collaboration of the Council on Foundations and Commonfund provides food for thought about the reversal in foundation returns in that year. TheRead More


An Overview of Real Asset Investing

Aug 26th, 2015 | Filed under: Real Estate, Private Equity, Infrastructure, Risk management, Intellectual Property

Guest columnist Andrew Smith, CAIA, provides an overview of real assets and their commensurate risks and rewards.Read More


Study Says The Gold Bugs are Right

Aug 23rd, 2015 | Filed under: Currencies, Hard metals, Risk management, Forex, Gold

Gold seems, to a larger extent than silver, and even more so to an extent larger than is true for palladium or platinum, to work as a true financial asset: decoupled from price developments in the commodity markets. It succeeds as a hedge against currency and stock-market trouble.Read More


Weintraub of GFT: Basel III Coming Into Force by Increments

Aug 20th, 2015 | Filed under: Hedge Fund Industry Trends, Risk management, Regulatory, Asset allocation

Faille spoke recently to Herman Weintraub, executive director and head of alternative investment practices at GFT, about the impact of the Basel III rule changes upon the HF industry. Weintraub says, one ought to look not at the parts, but at the whole. Read More


The Skorina Report: Risky Business–Chief Investment Officers and Public Pension Plans

Aug 16th, 2015 | Filed under: Institutional Investing, Alpha Hunters, Alpha Strategies, Risk management, Alpha Seekers

Guest columnist Charles Skorina with a cautionary tale of greed and deceit and less-than-best practices at a large public pension plan.Read More


SEC’s Daniel Gallagher: Friend of the Beleaguered CCO

Aug 10th, 2015 | Filed under: Hedge Fund Regulation, Risk management, Regulatory

Commissioner Gallagher contends that some recent enforcement actions "have unfairly contorted the rule to treat the compliance function as a new business line," thus giving compliance officers the unwelcome role of business heads. In this and other respects, Gallagher says the agency is setting up a perverse system of incentives for those who ought to be its allies, the CCOs of IAs. Read More


SBA of Florida Looks into Truth & Consequences of Activist Investing

Jul 16th, 2015 | Filed under: Institutional Investing, Risk management

Florida's State Board of Administration deserves some credit for undertaking a recent corporate governance study. Even trying to look at the consequences of its proxy-contest votes over a period of up to five years after they are cast seems to have shattered a glass ceiling separating actual institutional behavior from common sense. Read More


SEC: KKR Misallocated ‘Broken Deal’ Costs

Jul 14th, 2015 | Filed under: Private Equity, Risk management, Regulatory

A recent SEC finding at the expense of KKR illustrates the risk inherent in non-allocation, or careless allocation, of broken-deal expenses, and illustrates that lawyers don't necessarily use the word "deceit" to mean what one might think it means. Read More


Rogue Trader Adoboli’s Return to Freedom: Down Memory Lane

Jun 30th, 2015 | Filed under: Alpha Strategies, Risk management

Perhaps the fate of Kweku Adoboli, whose roguish trading at UBS' expense came to light in September 2011, can serve now in the summer of 2015 as a caution for some in the European elite contemplating the long stand-off between Syriza and the Troika. Read More


European Investor Satisfaction with Smart Beta ETFs

Jun 28th, 2015 | Filed under: CAPM / Alpha Theory, Alpha Strategies, Risk management, Liquid Alts, ETFs, Smart Beta

Two authors at EDHEC remind us that 15% of the assets in any ETF or ETF-like products for European investors were in smart-beta indexed products as of August 2014, and that this amount is growing. They discuss the extent to which investors are pleased with their results. Read More