Sun, Apr 23, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Infiniti Capital unveils new hedge fund ranking method

Friday, October 02, 2009
Opalesque Industry Updates – 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), a free trial of which can be downloaded from http://infiniti-analytics.com/opalesque.

Infiniti chief investment officer and IAS project originator Peter Urbani says, “We believe this method to be superior to most others in use. There is always general skepticism about new methods and a reluctance to adopt them due to corporate inertia. However, the proof of the pudding is always in the eating.

“Infiniti Capital has been using this method for the past two years,” he says. 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.”

Out-of-sample distribution of portfolio returns
For more on the SFA score or to download a free trial of the IAS see: Source

OR
http://www.infiniti-analytics.com/kb/kb/article/infinitisfascorearapm

What is the SFA score:
The SFA score is a percentile based measure made up of some 30 odd statistics. The score can be broken down into Risk, Return and Persistence sub-scores. It is standardized to a large reference data set of other funds making it a relative measure. It is also conditional on the time period under review.

For more information, please contact Peter Urbani on telephone +64 29 977 8811 Or email him at Source

km

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Carden Capital bets on volatility[more]

    Bailey McCann, Opalesque New York for New Managers: Machine driven strategies are having a bit of a moment in the hedge fund world right now. Systematic funds have outperformed other strategies at a time when all ey

  2. Sprott AM to sell Canadian diversified fund business to management-led group[more]

    Komfie Manalo, Opalesque Asia: Toronto-based asset management company Sprott Asset Management LP (SAM) has entered into an agreement to sell its Canadian diversified fund business to a management-led group. Under the deal, the new group will have

  3. Investing - These hedge funds (and Madeleine Albright) are betting on a debt crisis, Hedge funds are upping their bets on the death of the traditional retailer, $20bn hedge fund recaps Corizon[more]

    These hedge funds (and Madeleine Albright) are betting on a debt crisis From Yahoo.com: There could be a big debt crisis brewing in places like China, India, Latin America and Africa -- and a growing number of investors are amassing war chests to cash in on the distress. Albright Capital

  4. Universities looking to defend endowments from Republican tax plan[more]

    From PIOnline.com: Some of the richest U.S. colleges are pushing back against scrutiny by Congress over the tax-exempt status of university endowments. Lobbying disclosure forms show almost two dozen schools such as Princeton University, University of Notre Dame and Cornell University are including

  5. Activist News - GAM touts 'tangible results' of turnaround as activist fight hots up, Bill Ackman not done with Herbalife, says his fight could get legs in May, Activist hedge fund CIAM says Euro Disney's buyout offer not fair for minority investors[more]

    GAM touts 'tangible results' of turnaround as activist fight hots up From FNLondon.com: GAM, the Swiss asset manager at the center of an attempted boardroom putsch by activist hedge fund RBR Capital, said its first-quarter results amounted to "tangible" proof that its management's plan f