The best of the best?
A few years ago, the Alaska Permanent Fund (APF) – Alaska’s sovereign wealth fund with assets of USD 50+ bn (website) – introduced an interesting element into their portfolio. After an exhaustive search, they appointed five asset management firms as external CIOs. They gave each about USD 500 million in a largely unconstrained mandate (the […]
The performance of asset managers
I have made only one specific investment recommendation on this weblog so far and it has turned out to be rather poor advice, at least in the short term. I questioned the wisdom of investing in the Carlyle IPO almost two years ago. But Carlyle has comfortably outperformed both the market and its sector since […]
Risk adjustment as an excuse
Risk adjustment is a fundamental element of modern portfolio theory. Alpha is defined as the return left over after the impact of all sources of risk, including strategic biases, has been accounted for (see the examples in my series on alpha). But a positive historical alpha alone is not sufficient to conclude that a particular […]
Alpha in tactical asset allocation
It is easy to beat the benchmark of a balanced portfolio in the long run. All we have to do is systematically overweight the riskier asset classes to capture their higher risk premiums. This may add some volatility but will almost certainly lead to a better long-term performance. Many years ago, I suggested this approach […]
Alpha in single asset class portfolios
Active managers try to outperform their benchmark through various active bets. They obviously need to be skilled in order to be successful. But skill is not the only possible driver of active bets. Some will be the result of biases. As investors, we need to be able to untangle the impact of skill – alpha […]
Alpha – real and fake
A few weeks ago, a friend asked me what I thought about a recently published study, entitled “The value of the hedge fund industry to investors, markets and the broader economy”. Written by the Centre for Hedge Fund Research of the Imperial College in London, it is published by KPMG and the Alternative Investment Management […]
Lies, damn lies and FTfm statistics
This week’s FTfm (the FT’s financial market supplement) ran an article headlined Hedge fund gains are other funds’ losses (access reserved to subscribers). It finds that hedge fund managers outperformed over the past thirteen years and that this outperformance was “financed” by a corresponding underperformance of traditional asset managers. This would be very good news […]
Showing ever better performance
Even though we all know that past performance is a very imperfect guide to future performance, it is still a major factor for many investors – if not the major factor – in the manager selection process. It is therefore natural that managers seek to present their performance numbers in the most favorable light possible. […]
How to ensure poor performance
By Rolf on 10 November 2015
This “case study” is taken from a piece that I wrote for a client who found it too negative. It describes the way that many “active” equity portfolios are managed. It may seem like a caricature to some, unfortunately it is not. Thus, it is not surprising that so many fail to perform. Consider a […]
Posted in Active/passive management, Comments/ramblings | Tagged Alpha, Performance