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Alternative Market Briefing

Volatile markets redefine trade component of hedge fund strategies, "position calibration" becomes source of alpha

Friday, July 31, 2009

From Kirsten Bischoff, Opalesque New York:

The markets have changed. Levels of volatility have greatly increased, and the uncertainty that the financial crisis has unleashed on investors is likely to remain for the foreseeable future. These factors make it much more likely that the markets will continue to move from one extreme to the next and strengthen the need for investors to understand and analyze the trade methods of hedge fund managers during the due diligence process.

Specific to the hedge fund industry, it has been determined that investors reallocating to hedge funds are favoring the simplest and the most liquid strategies, which can include strategies that utilize frequent trading.

"The one issue that hedge fund investors must realize is that hedge fund strategies are much more about 'trading' than 'investment'", points out Rene Levesque, Founder of hedge fund due diligence and research firm Mountjoy Capital (www.MountJoyCapital.com).

Levesque, who's background includes overseeing research for a $2bln Canadian based FoHF, positions in back and middle offices, and time as an equity derivatives prop trader, concentrates on the analysis of 14 different factors when providing his clients with fund evaluations. The prop trading focus of securing absolute returns and protecting capital through the entry and exit of positions is one he belie......................

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