Hong Kong-based hedge funds of funds shop Infiniti Capital believes it has found a better way to quantitatively rank the risk adjusted returns of hedge funds than that used by traditional methods.
The new ranking method, called the Infiniti Single Fund Analysis (SFA) score, is included as a risk adjusted performance measure (RAPM) in Infiniti’s recently launched Infiniti Analytics Suite (IAS).
“We believe this method to be superior to most others in use." Infiniti chief investment officer and IAS project originator Peter Urbani says, "Infiniti Capital has been using this method for the past two years.”
The effectiveness of any such method, based purely on historical data, is in how well today’s ranking predicts what happens tomorrow or at some future out-of-sample period. In statistical speak this is known as the predictive power of the method.
The one major advantage of any quantitative method is that users can test its performance against all other known methods quickly and easily. In a recent study, the IAS development team did exactly that, comparing the performance of a portfolio built using the SFA total score as the objective to maximize versus three other widely used RAPMs.
This study showed that by using the SFA total score as an objective function, annual returns of up to 500 basis points (5%) per year higher than those using other traditional methods were achievable.
The database used was a common set of 36 hedge funds. Significantly, the returns achieved in 2008 were much higher than those for both the equally weighted portfolio and actual hedge fund of funds which generated average returns of -19% last year.
The ratio of the absolute realised risk adjusted returns, denoted as the Compound Annual Growth Rate (CAGR) over the absolute value of the peak to trough drawdown (downside risk), was also the best for the SFA portfolio.
“The predictive power of the SFA score comes from its innovative construction, proprietary weighting and ability to identify some of the non-linear effects common to hedge funds,” Urbani says.
Unlike traditional performance measures, the SFA score is both conditional on the time period being used and relative to a large reference data set of other hedge funds. Where other methods typically standardize everything back to a normal or Gaussian distribution, the IAS uses the best fitting distributions throughout. This has the effect of calibrating the range of scores more closely to real-world data.
Urbani stresses that the method is not perfect. “The SFA scores will not provide the best returns over each and every single time period, however, over any meaningful length of time they will tend to out-perform.”
He says, “We do not force people to use the SFA scores. This is a key point of differentiation between the IAS and other software packages. Just because we have a good idea doesn’t mean everyone should use it. That’s why this is an option in the IAS along with the ability to use just about any other known RAPM for optimisation purposes or to build your own.”
1 Oct 2009
Former President Bill Clinton Honors Alternative Investor LeapFrog
In the Closing Plenary of the Clinton Global Initiative 2009, former President Bill Clinton featured LeapFrog Investments, which raised the world's first microinsurance fund.
"LeapFrog's team is widely recognized as having opened up a new frontier in microfinance and alternative investment." The former President noted, "The fund has raised $44 million from both private and public investors, towards an ultimate target of $100 million."
Before an audience of 1000 global leaders, President Clinton drew a direct link between the work of Nobel Laureate Muhammad Yunus to bring microcredit to millions of people, the 'Banker to the Poor,' and the work of LeapFrog as the global leader in microinsurance: "LeapFrog is quickly becoming the 'Insurer to the Poor'. Just like Yunus, [LeapFrog] is the first out of the gate, the first microinsurance fund in the world."
"For those 25 million clients, LeapFrog means the ability to leap out of poverty permanently." Dr. Andrew Kuper, President and Founder of LeapFrog said. "For our portfolio companies, LeapFrog means leaping to the next stage of growth and impact. For our investors, LeapFrog does mean the next frontier of microfinance and alternative investment."
Pierre Omidyar, Founder of EBay, immediately concurred with a post on Twitter, saying that it was "Great to see LeapFrog . . . recognized by President Clinton for work in microinsurance." The Omidyar Network is a lead investor in the fund, together with the European Investment Bank, FMO, Triodos, and Accion International.
LeapFrog's fund is now developing investment opportunities in key emerging markets such as India, Indonesia, the Philippines, South Africa, Ghana, and Kenya.
"LeapFrog's team is widely recognized as having opened up a new frontier in microfinance and alternative investment." The former President noted, "The fund has raised $44 million from both private and public investors, towards an ultimate target of $100 million."
Before an audience of 1000 global leaders, President Clinton drew a direct link between the work of Nobel Laureate Muhammad Yunus to bring microcredit to millions of people, the 'Banker to the Poor,' and the work of LeapFrog as the global leader in microinsurance: "LeapFrog is quickly becoming the 'Insurer to the Poor'. Just like Yunus, [LeapFrog] is the first out of the gate, the first microinsurance fund in the world."
"For those 25 million clients, LeapFrog means the ability to leap out of poverty permanently." Dr. Andrew Kuper, President and Founder of LeapFrog said. "For our portfolio companies, LeapFrog means leaping to the next stage of growth and impact. For our investors, LeapFrog does mean the next frontier of microfinance and alternative investment."
Pierre Omidyar, Founder of EBay, immediately concurred with a post on Twitter, saying that it was "Great to see LeapFrog . . . recognized by President Clinton for work in microinsurance." The Omidyar Network is a lead investor in the fund, together with the European Investment Bank, FMO, Triodos, and Accion International.
LeapFrog's fund is now developing investment opportunities in key emerging markets such as India, Indonesia, the Philippines, South Africa, Ghana, and Kenya.
Hedge Fund Manager Launches Fixed Income Frontier Fund
In a move that shows that product innovation is still alive and well, Silk Invest, an asset management firm regulated by the FSA, has just announced the launch of its new UCITS Luxembourg domiciled fund.
Focused on frontier markets, the new fund will be named The Silk Road Income Fund. Silk Invest also has previously launched equities hedge funds African Lions and Arab Falcons.
"The Silk Road markets are under-represented in investor’s portfolios. The timing of our launch is perfect for investors as it enables them to take advantage of the re-pricing of risk in these markets.”Daniel Broby, Chief Investment Officer of Silk Invest, said, "Recent history shows that the collective Silk Route countries have consistently grown GDP faster than developed economies."
As part of the fund development, Silk Invest conducted a survey of fixed income securities across the target regions, covering over 4,100 bonds and $480bn in total debt volumes. From this list the firm was able to filter out the most lucrative and liquid target asset universe, using a combination of credit and market-oriented stress tests.
"We aim to manage 60-80 holdings across 25 countries in the fund and are currently showing portfolio yields of over 16.5% with duration of 3.4 years." John Bates, Head of Fixed Income at Silk Invest, said.
Baldwin Berges, Director of Business Development at Silk Invest, noted “Despite tough market conditions, we are seeing strong investor appetite for fixed income in these frontier regions as investors seek reliable returns from a diversified pool of assets. With Daniel Broby’s longstanding investment management track record, John Bates’ experience as a credit analyst and Patrick Landi’s experience in origination, we have put together a formidable team of people, all with hands-on experience in frontier markets”
Focused on frontier markets, the new fund will be named The Silk Road Income Fund. Silk Invest also has previously launched equities hedge funds African Lions and Arab Falcons.
"The Silk Road markets are under-represented in investor’s portfolios. The timing of our launch is perfect for investors as it enables them to take advantage of the re-pricing of risk in these markets.”Daniel Broby, Chief Investment Officer of Silk Invest, said, "Recent history shows that the collective Silk Route countries have consistently grown GDP faster than developed economies."
As part of the fund development, Silk Invest conducted a survey of fixed income securities across the target regions, covering over 4,100 bonds and $480bn in total debt volumes. From this list the firm was able to filter out the most lucrative and liquid target asset universe, using a combination of credit and market-oriented stress tests.
"We aim to manage 60-80 holdings across 25 countries in the fund and are currently showing portfolio yields of over 16.5% with duration of 3.4 years." John Bates, Head of Fixed Income at Silk Invest, said.
Baldwin Berges, Director of Business Development at Silk Invest, noted “Despite tough market conditions, we are seeing strong investor appetite for fixed income in these frontier regions as investors seek reliable returns from a diversified pool of assets. With Daniel Broby’s longstanding investment management track record, John Bates’ experience as a credit analyst and Patrick Landi’s experience in origination, we have put together a formidable team of people, all with hands-on experience in frontier markets”
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