Lars Jaeger – Alternative Beta Strategies & Hedge Fund Replication
There s a buzzword that has shortly captured the creativeness of product suppliers and traders alike: “hedge fund replication”. In the broadest sense, replicating hedge fund methods means replicating their return sources and corresponding threat exposures. However, there nonetheless lacks a coherent image on what hedge fund replication means in apply, what its premises are, distinguish di erent approaches, and the place this could lead us to.
Serving as a handbook for replicating the returns of hedge funds at significantly decrease value, Alternative Beta Strategies and Hedge Fund Replication supplies a novel give attention to replication, explaining alongside the way in which the return sources of hedge funds, and their systematic dangers, that make replication doable. It explains the background to the brand new dialogue on hedge fund replication and derive the returns of many hedge fund methods at a lot decrease value, it differentiates the assorted underlying approaches and explains how hedge fund replication can enhance your individual funding course of into hedge funds.
Written by the well-known Hedge Fund knowledgeable and creator Lars Jaeger, the guide is split into three sections: Hedge Fund Background, Return Sources, and Replication Techniques. Section one supplies a brief course in what hedge funds truly are and the way they function, arming the reader with the background information required for the remainder of the guide. Section two illuminates the sources from which hedge funds derive their returns and reveals that almost all of hedge fund returns derive from systematic threat publicity somewhat than supervisor “Alpha”. Section three presents numerous approaches to replicating hedge fund returns by presenting the primary and second era of hedge fund replication merchandise, factors out the pitfalls and strengths of the assorted approaches and illustrates the mathematical ideas that underlie them.
With hedge fund replication going mainstream, this guide supplies clear steerage on the subject to maximise returns.
Table of Contents
- Breaking the Black Box.
1.1 New Popularity, outdated confusion.
1.2 The challenges of understanding hedge funds.
1.3 Leaving Alphaville.
1.4 The fantastic thing about beta.
1.5 Alternative versus conventional beta.
1.6 The replication revolution.
1.7 Full disclosure.
- What Are Hedge Funds, Where Did They Come From, and Where Are They Going?
2.1 Characteristics of hedge funds.
2.2 Hedge funds as an asset class.
2.3 Taxonomy of hedge funds.
2.4 Myths, misperceptions, and realities about hedge funds.
2.5 A brief historical past of hedge funds.
2.6 The hedge fund trade at present.
2.7 The way forward for hedge funds – alternatives and challenges.
- The Individual Hedge Fund Strategiesâ?? Characteristics.
3.1 Equity Hedged – Long/Short Equity.
3.2 Equity Hedged – Equity Market Neutral.
3.3 Equity Hedged – Short Selling.
3.4 Relative Value – common.
3.5 Relative Value – Fixed Income Arbitrage.
3.6 Relative Value – Convertible Arbitrage.
3.7 Relative Value – Volatility Arbitrage.
3.8 Relative Value – Capital Structure Arbitrage.
3.9 Event Driven – common.
3.10 Event Driven – Merger Arbitrage.
3.11 Event Driven – Distressed Securities.
3.12 Event Driven – Regulation D.
3.13 Opportunistic – Global Macro.
3.14 Managed Futures.
3.15 Managed Futures – Systematic.
3.16 Managed Futures – Discretionary.
3.17 Conclusion of the chapter.
- Empirical Return and Risk Properties of Hedge Funds.
4.1 When the Sharpe ratio isn’t sharp sufficient.
4.2 Challenges of hedge fund efficiency measurement – the difficulty with hedge fund indices.
4.3 Sources of empirical information.
4.4 Risk and Return properties of hedge fund methods.
4.5 Comparison with equities and bonds.
4.6 Deviation from regular distribution.
4.7 Unconditional correlation properties.
4.8 Conditional returns and correlations.
4.9 Hedge fund habits in excessive market conditions.
4.10 Benefits of hedge funds in a standard portfolio.
4.11 Quantitative portfolio optimization for hedge funds revisited.
4.12 Summary of empirical properties.
4.13 Appendix: Data suppliers for previous hedge fund efficiency.
- The Drivers of Hedge Fund Returns.
5.1 Alpha versus beta.
5.2 The enigma of hedge fund returns.
5.3 Hedge fund returns: how a lot is alpha?
5.4 The environment friendly market speculation.
5.5 Questioning the environment friendly market speculation: behavioural finance.
5.6 The theoretical framework of recent finance: Asset pricing fashions and the interpretations of alpha.
5.7 Systematic threat premia: The prevalence of beta within the world capital markets.
5.8 Risk premia and financial features.
5.9 Market inefficiencies: The ‘search of alpha’.
5.10 An illustration on the character of hedge fund returns.
5.11 The lower of alpha.
5.12 The magnificence of different beta.
5.13 The way forward for hedge fund capability.
5.14 Momentum and worth.
5.15 Active methods and option-like returns.
5.16 Why supervisor talent issues.
5.17 Buyer beware: Some closing phrases of warning about hedge fund returns.
- A First Approach to Hedge Fund Replication – Linear Factor Models and Time Series Replication Models.
6.1 Revisiting Sharpeâ??s strategy.
6.2 Understanding linear issue evaluation: standards for the issue mannequin strategy.
6.3 The mannequin specification drawback.
6.4 The information high quality drawback.
6.5 The improvement of hedge fund issue fashions.
6.6 Basic and superior issue fashions for hedge fund methods.
6.7 How good are our fashions?
6.8 Variability of threat exposures and persistence of issue loadings.
6.9 Can we create hedge fund replications with linear issue fashions?
6.10 The limitations of linear issue fashions.
6.11 Currently accessible hedge fund replication merchandise based mostly on RFS.
6.12 Summary and conclusion of the chapter.
- The Distributional Approach.
7.1 Being much less bold.
7.2 General rules of the distributional strategy.
7.3 Integration of correlations and dependencies.
7.4 Limitations of the replication strategy.
7.5 The empirical outcomes of the distributional technique.
7.6 Conclusion for the distributional strategy.
- Bottom up: Extraction of Alternative Beta and ‘Alternative Beta Strategies’.
8.1 The rule-based different.
8.2 What hedge fund traders actually need.
8.3 The first ‘alternative beta’ methods.
8.4 Relating hedge fund returns and threat premia: what we will mannequin.
8.5 Alternative beta methods for particular person hedge fund types and technique sectors.
8.6 New unique beta.
8.7 The query of asset allocation.
8.8 The limitations of hedge fund replication.
8.9 A notice on the difficulty of liquidity.
- Hedge Fund Portfolio Management with Alternative Beta Strategies.
9.1 The duties of the hedge fund portfolio supervisor.
9.2 The lure of saving charges.
9.3 The limitations of hedge fund replication.
9.The function of asset allocation.
9.5 Separations of duties for the fund of funds managers.
9.6 The concept of a core-satellite strategy to hedge fund investing.
9.7 Isolating pure alpha.
9.8 The first half within the funding course of: allocation to technique sectors.
9.9 Implementation of tactical asset allocation in a core-satellite strategy to hedge fund portfolios.
9.10 The second ingredient: supervisor choice.
9.11 Active post-investment threat administration.
9.12 Summary and conclusion.
- Replication and the Future of Hedge Funds.
10.1 Beyond alpha.
10.2 What do traders say thus far?
10.3 Replication and the 4 key challenges to the hedge fund trade.
10.4 Replication in actuality.
10.5 Replication and hedge fund progress.
10.6 Hedge funds within the broader context: The way forward for absolute return funding.
References and Bibliography.
Lars Jaeger holds a PhD diploma in theoretical physics from the Max-Planck Institute for Physics of Complex Systems, Dresden. He studied physics and philosophy on the University of Bonn, Germany, and Acole Polytechnique, Paris. After his post-doctorate research in Dresden, Lars started his finance profession as a quantitative researcher on econometric and mathematical modeling of economic markets at Olsen & Associates AG in Zurich. He subsequently joined the Hedge Fund group of Credit Suisse Asset administration, the place he was accountable for threat administration and quantitative technique evaluation. Lars is a founding companion of saisGroup, an funding agency specializing on different funding methods which in 2001 merged with Partners Group, the place he’s now a companion heading the group â??Alternative Beta Strategesa Lars holds the CFA constitution and is an authorized Financial Risk Manager (FRM). He is the creator of quite a few analysis publications and the books Risk Management of Alternative Investment Strategies, revealed in 2002 with Financial Times Prentice Hall, The New Generation of Risk Management for Hedge Funds and Private Equity (ed.) revealed by Euromoney in 2003, and Through the Alpha Smokescreen: A information to hedge fund return sources, revealed by Institutional Investors (2005). Lars lives along with his spouse and three youngsters close to Zurich, Switzerland.