Tue, Oct 21, 2014
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   |   

Banner

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: What's next for trend followers?[more]

    Bailey McCann, Opalesque New York: New research out from Ibbotson touches on a key debate happening among investors and fund managers, specifically whether long term trend followers can survive in the new

  2. Commodities - Oil wreaking havoc on small-cap energy stocks sliding 36%[more]

    From Bloomberg.com: Owning almost anything in the U.S. stock market has been a losing proposition since September. Owning smaller energy companies has been a catastrophe. Hercules Offshore Inc. and Resolute Energy Corp. are among 19 oil-and-gas equities in the Russell 2000 Index that lost more than

  3. Investing - Hedge funds favor equity long/short, Strategic bond managers hedge against further high yield sell-off[more]

    Hedge funds favor equity long/short From Securitieslendingtimes.com: Equity long/short strategies will generate good returns for hedge funds in the future, according to a panel at this year’s Risk Management Association Conference on Securities Lending in Naples, Florida. Panellists Sand

  4. Legal - Ex-hedge fund analyst weeps as judge hands down 5 year sentence, Former Columbus investment manager Steven P. Moore indicted on theft charges, SEBI confirms ban for Hong Kong hedge fund, SEC announces enforcement action against compliance officer[more]

    Ex-hedge fund analyst weeps as judge hands down 5 year sentence From Hereisthecity.com: An ex-hedge fund analyst was sentenced to 5 years in prison for his role in insider-trading scheme. The New York Post reports that former hedge fund analyst Matthew Teeple was sentenced Thursday to fiv

  5. Sparx optimistic about outlook for Japan[more]

    Benedicte Gravrand, Opalesque Geneva: According to SPARX, there are causes to be optimistic about the outlook for the Japanese market and the country's economy in general. Sparx Asset Management is a Tokyo-based asset manager, part of