National and international media reports have highlighted hedge funds setting up or moving to Florida. This Opalesque Roundtable adds relevant background information about this trend and hedge funds located in Florida and includes a critical discussion about the changes in this industry and the challenges for professional investing in the current environment.
Investing Today: The Tyranny of the Short Term
Many investment strategies make sense only if they are held over a full investment cycle, but the challenge professional asset managers have is that psychology often weakens the investors' conviction when volatility kicks in.
Drawdowns have become the single biggest risk parameter investors for investors, rather than Sharpe ratio. Investors look at their mark-to-market gains and any loss from the peak turns into pain. This peak to trough drawdown versus annualized returns is also called the pain indicator. If that drawdown is vastly more than the annualized returns, investors lose their confidence in the strategy. If after a deep loss the strategy bounces back, a lot of people will miss the rally because they threw in the towel and walked away before that. This happens not just with alternative investments, but also the long only space.
This Roundtable discusses two factors that exacerbate this problem. First, investors today tend to succumb to a constant overload of the “wrong” information. Many of those media the investors use talk about trading on a day by day basis, and professional investment managers believe investors shouldn't be focusing on this type of information at all, because the incessant inflow of short term information usually carries investors away from looking at the long term perspective.
Why 80% of investors ask the wrong questions when evaluating a manager
The other fundamental problem comes from the fact that most people managing vast pension assets as well as their advisors and consultants have never traded, certainly not alternative investment strategies. This can also distort a proper evaluation of certain investment styles and trades, and deeply affects how certain institutions and their consultants screen, evaluate and invest in external investment managers.
Daniel Ades believes that 80% of investors he meets ask the wrong questions when evaluating a manager. This Roundtable highlights why this is the case, what would be some of the “right” questions, and also critically examines the role of consultants and their dismal lack of actual trading experience, particularly in alternative strategies.
The Roundtable took place on December 14th 2012 at the Wells Fargo Miami office with:
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Julie Neitzel, President, GenSpring Family Office
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Daniel Ades, Partner, Kawa Capital Management
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Marc Lehmann, General Partner, Riverloft Capital
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Maxime Dupont, Founder, Chairman and Chief Executive Officer, Quantam Group
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Michael Levas, Founder, Chief Investment Officer, & Senior Managing Principal, Olympian Capital Management
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Monty Agarwal, Managing Partner, Chief Investment Officer, MA Capital Management
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Paul Grassi, Wells Fargo Insurance Services, Vice President/Hedge Fund Practice Leader
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Pratik Sharma, Managing Director, Atyant Capital
and offers interesting insights about:
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How to evaluate correctly an investment manager
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Strategies to enable investors to handle the information overload
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Why real estate investors are typically a different breed
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The three basic dimensions of risk, and how they are interlinked
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Are most investors really in an unintended risk on environment?
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How sovereign wealth funds and other sophisticated investors benefit from short term volatility
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How complex, dynamic hedging applications can bridge the gap between algorithmic techniques and traditional long term investment
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The “huge” arbitrage between private and public assets and other investment opportunities on which Florida based hedge funds focus
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The benefits of running a hedge fund from Florida
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How to access Florida's high net worth communities most effectively
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How GenSpring multi family office screens and selects external managers
The 27 page Roundtable script is attached and can be downloaded here for free: www.opalesque.com/RT/FloridaRoundtable2013.html