Intelligent Hedge Fund Investing

Foreword

Tanya Beder

Caxton Associates LLC

About the Editor

List of Contributors

Intelligent Hedge Fund Investing: An Introduction

Barry Schachter

SECTION 1: CHALLENGES TO HEDGE FUND INVESTORS

Introduction

Barry Schachter

1. Hedge Funds vs Common Sense

Harry M. Kat

City University, London

2. Understanding Risks Embedded in Portfolios of Hedge Funds

Boris Arabadjiev

Credit Suisse Asset Management

3. Indexing Hedge Fund Indices

Noël Amenc; Lionel Martellini; Mathieu Vaissié

EDHEC

4. The Benefits and Costs of Illiquidity

Hilary Till

Premia Risk Consultancy, Inc

5. Threading a Rope Through a Needle: How Does a Large-Scale Investor Approach Hedge Funds?

Leola B. Ross

Russell Investment Group

SECTION 2: MEASURING HEDGE FUND PERFORMANCE

Introduction

Barry Schachter

6. Maximum Drawdown: Further Results

Emmanuel Acar; Amy Middleton

Bank of America

7. The Alternative Sharpe Ratio

Bernard Lee; Youngju Lee

Imperial College; Allianz Hedge Fund Partners

8. AIRAP: Alternative Views on Alternative Investments

Milind Sharma

Merrill Lynch Investment Managers

9. How “Sharpe“ are Funds of Funds?

Youngju Lee; Bernard Lee

Allianz Hedge Fund Partners; Imperial College

SECTION 3: IDENTIFYING AND ESTIMATING HEDGE FUND RISKS

Introduction

Barry Schachter

10. Alternative Approaches to Estimating VAR for Hedge Fund Portfolios

Turan G. Bali; Suleyman Gokcan

Zicklin School of Business; Citigroup Alternative Investments

11. A Quantitative Analysis of Hedge Fund Style and Performance

Claus Bang Christiansen; Peter Brink Madsen; Michael Christensen

Aarhus School of Business

12. An Analysis of the Risk Factors Underlying Hedge Fund Returns

John Okunev; Derek White

Principal Global Investors

13. A Critical Examination of Historical Hedge Fund Returns

Nolke Posthuma; Pieter Jelle van der Sluis

ABP Investments; Free University Amsterdam and ABP Investments

SECTION 4: HEDGE FUNDS IN PORTFOLIOS

Introduction

Barry Schachter

14. Optimal Hedge Fund Style Allocation Under Higher Moments

Jean-François Bacmann; Sébastien Pache

RMF Investment Management; Ernst and Young

15. Evaluating Gains from Diversifying into Hedge Funds Using Dynamic Investment Strategies

Niclas Hagelin; Bengt Prambourg

Stockholm University School of Business and the Swedish National Debt Office; Stockholm University School of Business

16. Evaluating Hedge Fund Investments: The Role of Pure Style Indices

Francois-Serge Lhabitant

Union Bancaire Privée

Barry Schachter

Barry Schachter is Managing Director of Risk Management at SAC Capital Advisors, LLC, a large hedge fund. He is also the creator of GloriaMundi.org, a non-commercial website for risk management. Barry is a Fellow of the Program in Mathematics in Finance at the Courant Institute of NYU. He is a member of the Blue Ribbon Advisory Panel of PRMIA and the Advisory Board of IAFE. He serves on the editorial boards of the Journal of Derivatives and Finance Letters. Prior to his current position, Barry has held positions with Caxton Associates, Chase Manhattan Bank, the U.S. Comptroller of the Currency, the U.S. Commodity Futures Trading Commission, and several universities. He has also been a consultant to the International Monetary Fund. He has published his research in academic and practitioner journals, and has edited a book on derivatives in banking. He has spoken widely on the topic of risk management. He received his Ph.D. from Cornell University.