第十四届亚太财务经济及会计会议暨

HedgeFundMarketNeutralStrategies:DistinguishingFinancialandOperationalRiskFactorsStephenJ.BrownNYUSternTheJoint14thAnnualPBFEAand2006AnnualFeATConference第十四屆亞太財務經濟及會計會議暨2006台灣財務工程學會聯合研討會DistinguishingoperationalandfinancialriskHistoricalperspectiveOperationalriskCharacterizedbyconflictsofinterestFinancialriskThemythofmarketneutralityRobustmeasureoftailriskneutralityConclusionTheHistoryofHedgeFundsThefirsthedgefund:AlfredWinslowJones(1949)LimitedPartnership(exemptfrom’40Act)Long-shortstrategy20%ofprofit,nofixedfeeUsedshortpositionsandleverage“HedgeFund”(Fortunemagazine1966)TigerFund(InstitutionalInvestor1986)GeorgeSoros$3.2BillionraidontheERM(1992)CalPERS(2000)InstitutionalconcernaboutriskFiduciaryguidelinesimplyconcernforriskFinancialriskOperationalriskInstitutionaldemandGrowingpopularityofmarketneutralstylesExplosivegrowthoffundsoffundsDemandfor“marketneutral”fundsoffundsOperationalRisk00.20.40.60.81715233139475563717987Duration(Months)FractionofFundsSurvivingCTAsHedgeFundSource:TremontTASS(Europe)LimitedHedgefundfailureishighlypredictable…MeasuringoperationalriskSECregistrationrequirement(Feb2006)2270ofTASSFundsthatregisteredHadbetterpastperformanceHadlargerassetsundermanagement15.8%hadpriorlegal/regulatoryproblemsWhatarethecorrelatesofoperationalrisk?Correlatesofoperationalrisk“Problem”Funds“Non-Problem”FundsNMeaMedianNMeanMediaDiffAvgReturn3560.890.8018980.980.84-0.09*StdDev3542.601.7918972.742.08-0.14SharpeRatio3540.330.2918970.390.30-0.06*AUM($mm)325218.258.741647180.254.0038.00Age(Years)3585.654.5019124.993.920.66**ManagementFee(%)3581.371.2519121.381.50-0.01IncentiveFee(%)(%)35815.2320.00191217.5220.00-2.29**HighWaterMark3580.691.0019120.821.00-0.13**LockupPeriod(months)3584.070.0019124.480.00-0.41ExternalconflictsProblemfundsNonproblemfundsWith:N%YesN%YesBroker/Dealer35973.8191224.8InvestmentComp35950.4191216.0InvestmentAdvisor35974.7191241.3CommoditiesBroker35953.5191220.3Bank35940.419129.8Insurance35939.819129.4SponsorofLLP35956.8191222.2InternalconflictsProblemfundsNonproblemfundsWith:N%YesN%YesTradesecuritieswithclients35930.119128.4Allowtradingonownaccount35985.2191269.6Recommendownsecurities35974.9191250.8In-housebrokerdealer35931.219122.3Recommendsownunderwritingservice35969.4191246.8Recommendscommissionfeeitems35922.6191215.7Recommendsbrokers35945.7191238.4Usebrokerprovidedexternalresearch35981.3191269.9TowardsaunivariateindexofoperationalriskTASSVariablesSECVariablesPreviousReturns-0.27In-housebrokerdealer0.06PreviousStd.Dev.-0.36Associatedwithbrokerdealer0.24FundAge-0.10Investmentcompanyassociation0.25LogofAssets0.09Investmentadvisorassociation0.24ReportsAssets0.07Commoditytraderassociation0.44IncentiveFee-0.89Associatedwithbankorthrift0.39Margin-0.29Associatedwithinsuranceco0.42Audited-0.21Associatedwithltd.partnersyndicator0.27PersonalCapital-0.26Tradesecuritieswithclients0.06Onshore-0.11Allowtradingonownaccount-0.12OpentoInv.0.04Recommendownsecurities0.32AcceptsManagedAccts-0.13Recommendsownunderwritingservice0.24Recommendscommissionfeeitems0.28Recommendsbrokers-0.35Usebrokerprovidedexternalresearch-0.69CorrelationBetweenFractionofownerswhohold75%offirm0.17TASSandADVPanels0.41Fractionofdomesticownership0.28FinancialRisk0%10%20%30%40%50%60%70%80%90%100%0102030405060708090100SizeofportfolioPercentofriskEquitiesS&P500riskSource:EltonandGruber1995.RiskismeasuredrelativetothestandarddeviationoftheaveragestockFinancialRisk0%10%20%30%40%50%60%70%80%90%100%0102030405060708090100SizeofportfolioPercentofriskEquitiesHedgeFundsS&P500riskHedgeFundriskCaughtbythetail“S&P500returnsatTreasuryBillrisk”Mostnewfundsclaimtobe“marketneutral”ZerocorrelationwithbenchmarkZerocorrelationisnotastrategyZerocorrelationisanoutcomeofastrategyThesestrategiesfailinliquiditycrisesRiskisconsiderablyunderstatedNewconcept:“tailriskneutrality”AmarketneutralstrategyDataTASShedgefunds–bothdeadandaliveUSfundswithatleast10returns,averageof40maxof120.Notalotofdataperfund,butplentywhentheuniverseiscombined–nearly50,000fund-monthobservations.Anexampleof‘marketneutrality’FundReturnsMarketReturns0.20.20.40.60.80.60.80.41.5%1.1%0.8%0.4%Beta=.28,rho=.24AssumingMVNreturns2.5%1.9%1.3%0.6%FundReturns0.20.40.60.8S&P500Returns0.20.60.80.4Beta=.28,rho=.24Marketneutralityinthe‘realworld’UsingTASSdata2.5%1.9%1.3%0.6%FundReturns0.20.40.60.8S&P500Returns0.20.60.80.4Beta=.28,rho=.24Marketneutralityinthe‘realworld’LongShortEquityFunds2.9%2.2%1.3%0.6%FundReturns0.20.40.60.8S&P500Returns0.20.60.80.4Beta=.50,rho=.37Eventdrivenstyle3.1%2.3%1.5%0.8%FundReturns0.20.40.60.8S&P500Returns0.20.60.80.4Beta=.20,rho=.23DedicatedShortSellers4.5%3.4%2.3%1.1%FundReturns0.20.40.60.8S&P500Returns0.20.60.80.4Beta=-.91,rho=-.61Fixedincomearbitrage1.5%1.1%0.8%0.4%FundReturns0.20.40.60.8S&P500Returns0.20.60.80.4Beta=0.01,rho=0.02FundsofHedgeFundsHedgeFund1HedgeFund2HedgeFund3FundofFundsFundsofHedgeFundsProvidesHedgeFund1HedgeFund2HedgeFund3FundofFundsFundsofHedgeFundsProvidesDiversification–lowervalueatriskHedgeFund1HedgeFu