07a Hedge Funds and Performance Evaluation

8/8/2019 07a Hedge Funds and Performance Evaluation

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InstitutionalFinanceInstitutionalFinanceLecture06:PortfolioEvaluationandHedgeFunds

MarkusK.Brunnermeier

Preceptor: DongBeom Choi

PrincetonUniversity1


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APrimeronHedgeFunds History,Compensation

o HedgeFungandHsieh,1999,APrimeronHedgeFunds,Journalof

Empirical

Finance.

HedgeFundStrategieso CSFBTremonthttp://www.hedgeindex.com;

, , ,InvestmentManagement

o MalkielandSaha,2005,HedgeFunds:RiskandReturn,FinancialAnalystsJournal

Performance alphaversusbeta

o staleprices

o nonlinearpayoffs

FocusI:MergerArbitrageo MitchellandPulvino,2001,CharacteristicsofRiskandReturninRiskArbitrage,JofFinance

Fundflows

LiquiditySpiralsandLeverage

CorrelationacrossHedgeFunds

2


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HouseholdsHouseholds

Nonfinancial

firmsPensionfunds

Government Restofworld

Direct lending

3

,Corporate bonds


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Households

Financial

intermediaries

qu ty

Indirect

lending

Households

PensionfundsHFs

.

Debt

DepositsFinancial

MortgagesCorporateCredit

Nonfinancial

firms

Restofworld

Direct lending

paper,MBS, ABS

Government

44

,Corporate bonds


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Originateanddistributebankingmodel

Special

purpose

vehicles

(SIVs

etc.)

5


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6Source: Shin


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80%

90%

DP)

80%

fGDP)

Commercial Banks

Mutual Funds + Hedge

Funds + Broker/Dealers

50%

60%

70%

Ass

ets(%o

f

60%

ssets(as%o

Mutual Funds

20%

30%

40%

TotalFinancial

20%

40%

talFinancial

Security Brokers and Dealers

Hedge Funds

0%

10%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

0%

T

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privateinvestmentvehiclesforindividualsorinstitutionalinvestors.

,

and

the

managers

are

general

partners. Asgeneralpartners,thefundmanagersusuallyinvestinasignificantportionoftheir

personalwealthintothepartnershiptoensurethealignmentofeconomicinterests.

Investorstothepartnershiparechargedaperformancebasedfee wherethepotentialpayouttosuccessfulmanagerscanbesignificantlyhigherthanthefixedmanagement

fee.

duetodifferencesintheirtradingstrategies.

Hedgefundsdeploydynamictradingstrategieswhereasmostmutualfundsemployastaticbuyandholdstrategy.

useofshortsales.

Incontrast,theuseofleverageisoftenlimitedifnotrestrictedformutualfunds.

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FirsthedgefundbyAlbertWislow Jonesin1949. pr marystrategyuse ongs ortequ typos t onsan everage.

incentivefeebasedonperformance.

Until1966hedgefundsremainedrelativelyobscure

n ar c e n or une escr e ones un s o avere urns ne o fee)substantiallyhigherthanthebestperformingmutualfunds.

Rapidexpansionin196768 ,

fundssufferedlossesandcapitalwithdrawals.

Hedgefundsfadedbackintoobscurityuntil1986,whenanarticleinInstitutionalInvestorre ortedthatJulianRobertson'sTi erFundhad

compoundedannualreturnsof43%duringitsfirstsixyearsofexistence,afterexpensesandincentivefee.Thisreignitedinterestsinhedgefunds,withtheformationofmanynewhedgefunds.

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Managerscanreceivecertaintypesofperformancebasedfeesthatarepro e omu ua un s.

Thetypicalcompensationforhedgefundmanagersisa 2%managementfeeand

per ormance eew g wa ermar .

substantiallyhighercomparedtomutualfunds.

Mutualfundperformancebasedfeemustsatisfythe"fulcrum"rule:o

relativetoabenchmarkmustresultinthesameamountofpositiveandnegativeincentivefeesforamutualfundmanager

HFarenotsubjecttofulcrumruleandmanagerstypicallyreceive

Embeddedputoptionishighlydebatedo Ontheonehand,thesignificantamountofpersonalwealththathedgefund

managersplaceatriskalongsideinvestorsinhibitsexcessiverisktaking.

o nt eot er an ,t ereareextremec rcumstancesw eret e sproport onapayoutfromtheincentivefeemayoutweightheriskoflosingpersonalwealth

evenifreputationalrisksaretakenintoaccount.10


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Problemconfrontingamoneymanagerwho

e eves a e assuper or nves men s s

limitedowncapital Financingoptions

Equity

Debt puttinguppersonalassetsascollateral inmostcasesinsufficient

Disclosure

Fund

managers

adverse

to

fully

disclose

his

"winning

strategy"

Excludes or anizational forms that must meet a hi h level of "trans arenc " and "disclosure

Favors"privatevehicles" explainsthelackof"publiclyoffered"hedgefundproducts

Investorsdemandlimitedliabilityandprotection

disclosuredocumentsareatbestcursoryandcomplex

recommen a ons romare a esource ,managers repu a on p usper ormances a s csan

computersimulations.

Commitmentofmanagerspersonalcapitalandtheincentivefeestructureareoftencritical

elements.

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SecuritiesExchangeCommission(SEC)overseespubliclytradedsecurities,includingecorpora ons a ssue em, ro er ea ers, nves men a v sorsan mu ua

funds Enforcesfederalsecuritieslawsdesignedtoprotectinvestorsandensuredisclosure

Regulatesfirmsthatpurchaseorsaleofsecurities,provideinvestmentadvice,andinvestment.

SecuritiesActof1933o requiresfirmsissuingpubliclytradedsecuritiestoregisterandfiledisclosurereports.

o ExemptionforHF:ClaimstatusofaprivateplacementunderthesafeharborprovisionofRule506inRegulationD

SecuritiesExchangeActof1934o Regulatesecuritiesbrokerdealers thatfacepotentialconflictsinexecutingcustomerordersversusownaccounts.

o ExemptionforHF:aslongastheytradeonlyforownaccounts.

InvestmentAdvisersActof1940o requiresinvestmentadvisorstoregisterandtoconformtostatutorystandards.

o ExemptionforHF: havelessthan15clients,dontsolicitbusinessfromthegeneralpublic

InvestmentCompany

Act

of

1940

o severelyrestrictsamutualfund'sabilitytoleverage

o ExemptionforHF:Havenomorethan99investors(recently499and


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TheCommodityFuturesTradingCommission(CFTC)overseesfutures

CommodityExchangeActof1974 toregulatethefuturesmarketsinthe,

manipulation,abusivetradepracticesandfraud inthefuturesmarkets.

o Entitiesthathandlecustomerfunds

orprovidetrading

advice infutures

,industryselfregulatorybodyapprovedbytheCFTC.Inaddition,theseregistrantsmustdisclosemarketrisksandpastperformanceinformationtoprospectivecustomers.

investors,itisgenerallyrequiredtofileasacommoditypooloperatorwiththeCommodityFuturesTradingCommission.

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Hedgefundsarenotexemptedfromgeneralregulationsdesignedtomonitorand.

TheU.S.Treasuryrequirestraderstoreportlargepositionsinselectedforeigncurrenciesandtreasurysecurities.

TheSEC requirestraderstoreportpositions thatexceed5%ofthesharesofapubliclytradedfirm

QuarterlypositionforlargeHFs(13Ffiling)

TheFederalReservehasmarginrequirementsforstockpurchases(Reg T)

TheCFTC requirestraderswithlargefuturespositionstofiledailyreports.

TheCFTCandthefuturesexchangessetfuturesmarginsandpositionlimitsonfuturescontracts.

Theseregulationsapplytoallmarketparticipants,includinghedgefunds.

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Credit SuisseTremont

asset

weighted

hedge

fund

indexo calculatedandrebalanced

monthly

o Netoffeeandexpenses

includesonlyfunds,asoppose osepara eaccounts

4500funds

o m n mumo m onundermanagement

o 12monthtrackrecord

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convertiblesecurities

hedgetheequitycomponentbyshortingthe

Also,interestrate,volatility

andcredithedges Hedgeratiosadjustedas

marketsmove

typ ca y es gne tocreateprofitirrespectiveofmarketmoves.

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Priceofconvertiblebonds

nves men va ue= epr ce wereas ra g on

Conversionvalue=valueifconvertedintoitsequityequivalent(e.g.convertedinto5sharesofstockwithprice$10,then$50)

(usually,priceofbond>max{investmentvalue,conversionvalue})

Optionvalue(timevalue)

Convertiblearbitrage

shortpositioninthestock :

multiplyingbyoptiondelta.

Example:

o Convert'spriceis$1000,currentstockpriceis$50,conversionpremiumis50%,

sovalueofthestockpriceconversionpremiumis$75.Optiondeltais0.65.o Numberofsharestoshort,hedgeratio,isthen:($1000/$75)*0.65=8.6667.

o Forsmallstockpricemovementsthisshortpositionprovideshedge.

o

o Duringvolatilemarketsthishedgebreaksdown,butcanbeprofitable

o Cashinthecouponpayments18


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portfoliosoflongandshortequities

focusoncompanieswith

weakcashflowgenerationiscommon.

Riskmanagement

consistsofoffsettinglongpositionsandstoploss

.

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investmentsincurrencies,e tinstruments,equities

andotherinstrumentsof"emerging"markets

byGDPpercapita).

Latin

America,

Eastern

, ,o BRIC

o Next11

,arbitrage,creditandeventdriven,fixedincomebias,ande uit bias.

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ex loitin ricin relationshipsbetweendifferentequitiesor

typicallyhedgingexposure

tooverallequitymarket Subsectors

o Statisticalarbitrage

o Fundamentallong/short

o Indexarbitrage

Leverageiscommon

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Subsectors

o Risk(Merger)ArbitrageSpecialistsare

typicallylongthestockofthecompanybeingacquiredandshortthestockof

theacquirer.

o Distressed/HighYieldSecuritiesFund

managersinvestinclaimsofcompanies

infinancialdistressoralreadyin

default.The tradeatsubstantial

discounts,sincetheyaredifficultto

evaluateandhavealackofstreet

coverage.

.

capitalizationpubliccompaniesthat

areraisingmoneyinprivatecapital

markets.

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Differentfixedincome

securities Yieldcurvecarrytrade

Instruments

o

interest

rate

swapso on s

o futures

o voltradin involvin

options

o mortgagebacked

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FXcarr trades

Fixedincome,currency,equity,commodity(indices)

Focusonshiftsinworld,

changesorglobalsupply/demand

imbalances Focusonliquid

ns rumen s

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o Stockso Futures/options

Shiftfrom

o valuetogrowth,

o smalltolarge

o netlongtonetshort

Focuso Global,regional,or

sec or a

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Investmentinlistedbonds,currency,equ tyan

commodityfuturesmarketsglobally

e erre oas ommo yTradingAdvisors(CTA)

Relyontradingprograms

o Longtermtrendfollowing

o Shorttermcountertrend

o

systematic/discretionaryprograms

o Usestoplosspointstocontrolr s

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strategies startedasconvertible

arbs anddiversifiedin

otherstrategies) Oftenhighlyleveraged

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Sharpe Mean Std Dev Skew Kurt Min 5% Obs Dec-06

Long/Short Equity 0.22 0.63 2.83 0.12 6.89 -11.85 -3.52 171 29%

Event Driven 0.36 0.58 1.61 -3.16 24.84 -12.19 -1.83 171 24%

Global Macro 0.27 0.82 3.00 -0.06 6.20 -11.89 -3.58 171 11%

Multi-Strategy 0.33 0.42 1.26 -1.13 5.65 -5.10 -2.00 171 10%

Emerging Markets 0.12 0.53 4.48 -0.74 8.00 -23.45 -7.31 171 7%

Fixed Income Arbitrage 0.11 0.13 1.16 -3.14 18.19 -7.30 -1.88 171 6%E uit Market Neutral 0.59 0.46 0.79 0.18 3.66 -1.59 -0.80 171 5%

Managed Futures 0.09 0.30 3.46 0.01 3.11 -9.80 -5.24 171 5%

Convertible Arbitrage 0.23 0.32 1.39 -1.58 7.22 -6.04 -1.86 171 3%

Dedicated Short Bias -0.06 -0.31 4.83 0.80 4.89 -9.13 -7.48 171 1%

Sharpe Mean Std Dev Skew Kurt Min 5% Obs

Hedge Fund Index 0.25 0.54 2.15 0.00 5.40 -7.97 -2.61 171

Investment Banks 0.02 0.13 5.29 -0.27 3.25 -16.63 -9.31 168

Commercial Banks 0.15 0.78 5.20 -0.60 5.66 -24.45 -7.46 168

ane : nanc a ns u on n ces

Insurance Companies 0.16 0.76 4.64 0.10 6.49 -16.23 -6.30 168

Market 0.13 0.56 4.17 -0.74 3.97 -16.20 -6.44 172

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AverageHedgefundIndexreturn iscomparabletoS&P500.

,(abouthalf). primarilyduetothesharpdeclineoftheS&P500in2000and2001:

hedgefundshave,onaverage,beenabletounloadthemarketriskpriortotheec ne,seee.g.Brunnerme eran Nage 4

Consequently,theSharperatioforhedgefundsishigherthantheSharperatiofortheS&P500.

Correlation of hed e fund index with market is low 49 Varieslargeacrossstrategies

CorrelationofstrategieswithHFindexisgenerallyhigh

NoteinMalkielandSaha (2005)returnsarelower.Theyuseequalweighted(insteadofvalueweighted)returnsoftheTASSdatabase. Ingeneral,smallfundsperformworsethanlargefunds

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APrimeronHedgeFunds History,Compensation,

HedgeFundStrategies

Performance alphaversusbeta

o staleprices

o nonlinearpayoffs FocusI:MergerArbitrage

o MitchellandPulvino,2001,CharacteristicsofRiskandReturninRiskArbitrage,JofFinance

qu ty

s

an

s

anagement FundFlows LiquiditySpiralsandLeverage


Focus

II:

2007

Quant

crisis 31


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Biases Survivor allalivefundshavea20%deathrate

Backfill smoothoutreturns Selfreported

Estimationimpressionofmeanreturns ,if=15%,thenuncertaintyabout5yearmeanreturnis

1.96*15/5.5=+/13%

T/

Staleprices returnsmoothing

Nonlinearstrategies.

littlepersistenceinoutperformance

Conclusion

Evaluationofaveragereturnsoralphasisverynoisy

Evaluationofriskmeasureorbetasisuseful 32


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Jensen (riskthatisnotduetoloadingonmarketrisk)

ForCAPM=

][][

,,,

MPPP rErE +=

o P:tendencyofreturntoriseifmarketrises

o PrM,t:cangetsimplybeinvestinginindex(style)

o

P

o P,t:extrariskbeyondindexfund

Formultifactormodel

Appraisal(information)P

/

(takesleverageintoaccount)

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AppraisalRatio

S arpeRatio earnedaverageriskpremiumofportfolio/fundPperunitoftotalrisk

P

fP

rErE reynor n ex

earnedaverageriskpremiumofportfolio/fundPperunitofsystematic

risk(measuredbybeta)

P

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Hedge Fund Performance

on ro ng or e e urn an e e urn

40

60

80

-2 0

0

20

nnua

lalpha(percent)

-6 0

-4 0

A

-8 0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

95th Percentile A lpha Average Alpha 5th Percentile Alpha Source: FRBNY calculat ions from TASS

Alpha for two factor model with S&P500 and VIX

Note cross-section alpha is getting compressed over time35


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Annual He de Fund S&P500 Betas TASS

3

4

1

2

-1

0

-3

-2

95th Percentile S&P500 Beta 5th Percentile S&P500 Beta Average S&P 500 Beta

VIX-beta looks similar 36


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More than 80% is explained by FF-factors

-Intercept is still significant But volatility is much lower 37


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makes . .

low

o Wronglylowers estimate,increaseestimate

Returnsappearlessvolatile

o Informationratioincreases

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Style ER (%/mo) a b a3 b3 Not zero!

Index 0.64 0.46 0.28 0.36 0.44

Std. errors 0.20 0.17 0.04

Short -0.53 0.10 -0.94 0.13 -0.99

Bigger with lags

Emerg mkts 0.39 0.00 0.58 -0.07 0.69

Event 0.61 0.46 0.22 0.38 0.37

Global Macro 0.93 0.82 0.17 0.74 0.31

Reallynot zero.

Long/Short Equity 0.73 0.42 0.47 0.32 0.65

erna ve asse

Long-short doesntmean zero beta!

& 500i s p i

t t tr a br = + + 1 2 1 3 2 4 3

1 2 3 4

33

i sp sp sp sp i

t t t t t t r a b r b r b r b r b b b b b

= + + + + += + + +

Source for following slides: John Cochranes website, idea from Asness et al JPM

ags are mpor an s a e pr ces or oo ac op onBetas are big!

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40Annual returns moving average

20

30

0

10

20

10

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 200440

30

HF index

market

Correlation with the market is obvious.

Getting out in 2000-2003 was smart! (Mostly due to Global/Macro group) 40


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10

Monthly returns on Global Macro HF and US market

5

0

10

5

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

15rmrf

GlobalMacro

Lagged market effect is clear in 1998. Is Nov/Dec 1998 unrelated to Oct?

Dramatic stabilization / change of strategy in mid 2000 41


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LinearCAPMregressioncannotcapturenonlinearpayoff

structurest atar se

Fromtradingoptions Replicatingoptionswithdynamictradingstrategies

PopularHFstrategy writingputoptions

You collect a fee, only pay off if the market goes down a lot.rov ng sas er nsurance

Most of the time, stock ends up here. You make a small profitindependent of stock price. Looks like alpha, arbitrage.

Stock price

Fee (put price)

Toda s rice

Writing put profit

Rarely, the stock ends up here. You lose a huge amount

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Merger announced Merger completedPrice

Offer price

Buyerger a s

Time

Cas

o er.

Borrow,

uy

target

s ort

acquirer.

Largechanceofasmallreturnifsuccessful.(Leverageup) Smallchanceofalar elossifunsuccessful. Butofferismorelikelytofailifthemarketfalls!

Payoffislikeanindexput! 43


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Lineindicatessimilaritytowritingindexputs

Mitchell and Pulvino, JF

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Occasionalcatastrophes

Catastrophesaremorelikelywhenmarketdeclines

Mitchell and Pulvino, JF

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y e up own

Index 0.44 0.08 0.77Short -0.99 -0.22 -1.82

xamp e: e mar e goes up10%, the HF index goes up 0.8%.But if the market goes down 10%,the HF index oes down 7.7%!

Emerg mkts 0.69 0.08 1.16

Event 0.37 0.18 0.47

Global Macro 0.31 -0.08 0.66Long/Short Eqty 0.65 0.19 1.18

1 2 1 3 2 4 3

1 2 3 4

33

i sp sp sp sp i

t t t t t t r a b r b r b r b r b b b b b

= + + + + += + + +

( 0) ( 0)i sp sp it up t down t t r a b r b r = + > + < +

(Includes 3 lags)

Betasarec osetoone

Hence,needoptionreturnbenchmarks 47


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ER alpha SPPo SMB HML

sp sp o

t i i t i t i t i t t r r SPPo s SMB h HML = + + + + +

mo pu s s ze va ue

Event Arb 1.03 0.04 -0.92 0.15 0.08

Restructure 1.29 0.43 -0.63 0.24 0.12Event driven 1.33 0.20 -0.94 0.31 0.12

Rel. value arb 1.15 0.38 -0.64 0.17 0.08

SPPo = return from rolling over out-of-the-money putsSource: Agarwal and Naik RFS, using HFR data

Largemarketbetasemerge

Alphasaresmaller 48


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Market,value,size,momentum,term,default,currenc

Optionsonallofthese

Problems

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HedgeFundStrategies Performance

alphaversusbetao staleprices



Riskspillovers

FocusII:2007Quantcrisis

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Monthly returns for liquidated funds towards liquidation

(TASS)

1

1.2

0.2

0.4

0.6

.

t

-0.4

-0.2

0

.

25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

Perce

-1

-0.8

-0.6

Months

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arg n un ngr s Primebroker

MarginhastobecoveredbyHFsowncapital Marginsincreaseattimesofcrisis

Rolloverrisk CP Inabilitytorollovershorttermcommercialpaper

OutflowoffundsforHFsandbanks

Maturitymismatch:Maturitymismatch:Longtermassets(withlowmarketliquidity)S ortterm orrow ng

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A v e r a g e L o c k - u p P e r i o d ( T A S S )

5

6

7

3

4

Numberofmonths

0

1

2

Lockupperiods

1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6

Sidepockets53


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Netwealth> x .

(constantorincreasingleverageratio)

BernankeGertler,

ReducedPositions

Marginspiral (forcestodelever)

PricesMoveAway

from FundamentalsFundingProblems

InitialLosses

e.g.credit

Losseson

ExistingPositions

Both spirals reinforce each other

Source: Brunnermeier & Pedersen (2007)

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Percentage of Hedge Funds using Leverage

64%

66%

68%

60%

62%

54%

56%

58%

50%

52%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: TASS

Somewhat surprising, fraction of funds using leverage is declining 55


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Margins/Haircuts:

Rating Jan-May 2007 July-Aug 2007

Bond

Investment grade 0-3 3-7

High yield 0-5 10+

Leveraged Loan

Senior 10-12 15-20

2nd lien 15-20 20-30

Mezzanine 18-25 30+

ABS and CDO

- -

AA 4-7 20

A 8-15 30

BBB 10-20 50

Equity 50 100

Source: Citigroup, IMF Stability report 2007

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Hedge Fund Performance and Leverage

80

40

60

)

73%

72%

53%66%

70%

68% 74%

66%

65%

77%

69%

-20

0

20

nnualalpha(percen 67%

67%

68%

71%

73%

64%

58%

65%

63%59%

66%

66%

66%64%

62%

60%

62%63%

64%65%

57%57%

58%

-60

-4077%

70%

-80

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

95th Percentile Alpha Average Alpha 5th Percentile Alpha Source: FRBNY calculations from TASS

The red boxes indicate the percentage of funds in the top 5 percentile that use leverage.

The blue boxes indicate the percentage of funds in the bottom 5 percentile that use leverage.

The black boxes indicate the percentage of funds that use average leverage.

Topandbottomperformershavehigherleverage

In2005/06leverageishigh

In1998leverageislow 57


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Source: Jorion (2000) 58


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Crowdedtrades?

1998-08.8

Figure 4: Cross-sectional Correlation of Hedge Fund Returns

1998-08

0

15

Figure 3: Cross-sectional Covariance of Hedge Fund Returns

.2

.4

.

Correlation

0

5

1

Covariance

-.2

0

-10

-5

1994-01 1996-01 1998-01 2000-01 2002-01 2004-01 2006-01

Cross-Sectional Correlation Cross-Sectional Correlation MA(12)

1994-01 1996-01 1998-01 2000-01 2002-01 2004-01 2006-01

Cross-Sectional Covariance Cross-Sectional Covariance MA(12)

Vol declined greatmoderation59


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Highfrequencystatarbs Highfrequency,ITdriven,shorttermreversalstrategies

st th

e.g.RenaissancesMedallionfund

Low

frequency

quant

funds Valuegrowth(HML)strategy,momentumstrategy,earningtosaleratio,accrualstotalassetsratio,o Orthogonalize (diversification)

FXcarrytrades

e.g.GoldmanSachsGlobalAlpha,AQR,

became ver o ular crowded

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Why?Many(notonlyquant)fundsliquidaterelativelyliquidpositionsfirst liquidHMLsufferedevenmore

Quantfundsfocusonsamefewquantstrategies

o USfrom08/05/07+sharp(correlated)reboundon08/10/07

o Europe/Japanfrom08/08/07onwards 61


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E qu ity MarketNeutralInd ex Mac ro Ind ex G lob alIndex

100

105

urn

HFR indexes

95

CumulativeRe

85

/200

7

/200

7

/20

07

/20

07

/20

07

/200

7

/20

07

/20

07

/20

07

/200

7

/20

07

/20

07

/20

07

/20

07

Stat arb crisis

6 6 6/1

6/2

6/2 7 7/

17/

27/

2 8 8/1

8/1

8/2

8/3

Quant googols are needed to see it!62


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HedgeFundStrategies Performance

alphaversusbetao staleprices



qu ty s an s anagement FundFlows

LiquiditySpiralsandLeverage


FocusII:2007Quantcrisis63


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Ste henJenSoverei nWealthFunds

History

fromvolatileoilprice

Evolved

from

stabilization

funds

to

wealth

accumulation

New:manyAsiancentralbanks

o anagereservest roug s

Size:US$2.9tr +300bnayear

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Diversifyacross Assets

o sovereignbonds,agencies,corporate,equity,privateequity,realestate

Countrieso LargeimpactonUSTreasuries

Economicorstrategicinvestments

Geo oliticaldimension

Transparency Objectives,activities,performance

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07a Hedge Funds and Performance Evaluation

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