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Opalesque Roundable: The downsides of handcuffing a hedge fund manager

Thursday, December 07, 2017

Komfie Manalo, Opalesque Asia:

Many investors require their hedge fund managers to stick to their mandates. However, there may also be a downside to that as many funds, even with large assets under management, are not making money just because they are constrained by their mandates, said Gaurav Chakravorty, CIO of qplum, a wealth manager which uses machine learning to build an end-to-end AI-driven trading system.

Commenting on lackluster hedge fund returns during the latest Opalesque 2017 INVESTOR Roundtable, Chakravorty said, "They have to keep following the strategy they have been marketing for 20 years or so. For example, AQR cannot suddenly stop doing risk parity or momentum, that's what is expected from them."

He gave a personal example how having flexibility gave him and his team the opportunity to make a fortune: "I was trading for a family office, and until 2007 things were slow and we were doing some sort of short term mean reversion, and when volatility picked up- and this is sometimes not a sudden thing but more gradual- we saw that we could not be doing slow mean reversion. We then moved to faster price prediction strategies.

"Nowadays, this trade is called 'high frequency trading.' There was no name then, there was no precedent. We were able to change our mandate depending on where we saw greater opportunity. We could run......................

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