tag:blogger.com,1999:blog-3764912039741974037.post8861773623664814583..comments2024-03-10T06:35:25.018-04:00Comments on Expect[ed] Loss: Jack of All Trades?PF2http://www.blogger.com/profile/13893025381406343985noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-3764912039741974037.post-6478064331599548662008-11-13T10:27:00.000-05:002008-11-13T10:27:00.000-05:00Kevin I'm betting that's not a stock index - it's ...Kevin I'm betting that's not a stock index - it's the index of hedge fundsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3764912039741974037.post-19953619955251163782008-11-13T10:22:00.000-05:002008-11-13T10:22:00.000-05:00Bogus to compare these returns to a stock index - ...Bogus to compare these returns to a stock index - most of these strategies aren't pure stocks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3764912039741974037.post-65576260903737539822008-11-13T10:04:00.000-05:002008-11-13T10:04:00.000-05:00Nice!See if this sends you any traffic:http://www....Nice!<BR/><BR/>See if this sends you any traffic:<BR/>http://www.ritholtz.com/blog/2008/11/hedge-fund-performance-by-strategy/Ritholtzhttps://www.blogger.com/profile/08608448405502237269noreply@blogger.comtag:blogger.com,1999:blog-3764912039741974037.post-5878426420875230712008-11-05T14:35:00.000-05:002008-11-05T14:35:00.000-05:00Well…diversifying just for the sake of diversifyin...Well…diversifying just for the sake of diversifying doesn’t really accomplish anything unless you dig deeper and understand what you are diversifying into. For example buying a “diversified” MBS deal will supposedly reduce your credit risk from defaulting homeowners since you have homes underlying the deal from all over the country and home prices never go down everywhere at the same time!!!<BR/><BR/>A good point in there is that the Multi-Strategy funds were probably more levered…since they had “so little risk through diversification” they probably felt they could easily bring up their leverage.<BR/><BR/>However, I would also think that many of the Multi-Strategy funds weren’t as diversified as people think…either by being heavily focused on one strategy or unknowingly having the same bet on through many instruments.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3764912039741974037.post-49214466016119394312008-11-03T22:33:00.000-05:002008-11-03T22:33:00.000-05:00Heavy leverage has likely played a heavier role th...Heavy leverage has likely played a heavier role than other factors in the failure of multi-strategy funds to outperform their benchmarks. <BR/><BR/>Multi-strategy funds may have provided absolute returns and diversification in a period of plentiful and cheap financing, however the contraction in credit has caused correlation to approach 1 across every asset class.<BR/><BR/>The downshifting in leverage has been a slow and painful process. The first cracks appeared as major broker-dealers, under balance sheet constraints did not continue to provide previously available financing.<BR/><BR/>Under financing pressure, multi-strategy funds sold well performing, liquid assets in order to support under-performing, illiquid assets. <BR/><BR/>This avoided "realizing" losses, and lowered overall leverage - however it also reduced allocations to liquid strategies and increased exposure to illiquid assets. As credit disappeared, more assets became illiquid, affecting overall returns. <BR/><BR/>"Diversification" therefore, will not function properly if risk is not adjusted to reflect the market, but instead becomes a function of financing.Anonymousnoreply@blogger.com