Thu, Feb 22, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Asia Pacific Intelligence

Australian firm offers negatively correlated alpha

Monday, October 08, 2012

By Beverly Chandler, Opalesque London:

Sydney headquartered Triple 3 Partners was set up in 2009 by Simon Ho, its director and CIO. Based on his earlier experiences in the alternative sector - at Goldman Sachs, Deutsche Bank, and JP Morgan, around the world - Ho started out by designing a product, based on what he believed investors wanted.

In an interview with Asia Pacific Intelligence, Ho explained: "I had a previous incarnation in the alternative space so we boiled down what people tell us what they want and built that product for them. They wanted absolute returns; tight risk control and also negative correlation to equity in downmarkets, conditional negative correlation."<p>

With his business partner, Ho developed a volatility overlay product, with a volatility forecasting model plus an algorithm that helps them build a portfolio of options that give them the highest probability of achieving certain aims. "We basically built a better mousetrap" Ho says. And a mousetrap that fulfilled their initial three aims of absolute returns, tight risk control and conditional negative correlation.

Their flagship product is the NCA, the Negatively Correlated Alpha, which captures alpha from options markets whilst targeting strong negative correlation with the S&P500 during volatile periods. The strategy is implemented exclusively using exchange listed VIX options giving it deep liquidity, whatever the market conditions.

The firm conducted no marketing from 2009 to January this year, waiting to be able to produce proof that the system does what it says on the tin. However, word got out and during this period it was picked up, evaluated and given a high rating by Mercer and selected for the Deutsche Bank db Select Platform. It is also included in a Van Eyk fund, the Volatility Buffer, designed to act as a buffer for people invested in equities. In addition, Triple 3 currently supplies quantitative options research services to three of the largest investment banks and proprietary trading firms around the world.

The firm now has $250m under management. Gross returns for the NCA show 2011 clocking up at 9.51% and 2012 at 9.53%. The system has consistently appeared in the top 10 of performers on the db Select platform. Their Vami chart shows that the system can make money in all markets. "In two years since inception there has not been a single day where the quarterly returns in the S&P 500 has been negative and we have been negative" Ho says.

Part of the drive to create this product came from the debate mid 2010 on tail risk hedging. The firm published a white paper in September 2010 on volatility overlay, aiming to provide a counterpoint to tail risk hedging. "It has a negative expected value" Ho says. "You expect to lose money on it - you are better off if you put your money under the bed than buy a tail risk product" he says.

Opalesque produced a series of pieces on tail risk. You can access them here Part One. Part Two here; Part Three here and Part Four here.

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
Asia Pacific Intelligence
Asia Pacific Intelligence
Asia Pacific Intelligence
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. Art & Motion launches collectible car alternative investment vehicle[more]

    Komfie Manalo, Opalesque Asia: Luxembourg-based Art & Motion has launched a new investment vehicle dedicated to vintage cars and exceptional high-quality vehicles as this collectible market has grown exponentially the turn of the centu

  2. Opalesque Exclusive: Global Sigma captures February's long-vol trade[more]

    Bailey McCann, Opalesque New York for New Managers: Florida-based Global Sigma rode February's volatility to new highs. The firm's AGSF strategy is up +2.8 percent through February 16 and +4.2 percent YTD a

  3. Institutional Investors - Hedge funds regain their appeal for a $57 billion asset manager, Private credit strategies in stratosphere[more]

    Hedge funds regain their appeal for a $57 billion asset manager From Bloomberg.com: With volatility back on the radar, one of the Nordic region's biggest asset managers is considering relying a bit more on hedge funds to help oversee his portfolio. Mikko Mursula, the chief investment off

  4. Investing - All aboard for hedge funds as trade tide lifts shipping, Hedge funds pile into Time Warner in bet on merger success[more]

    All aboard for hedge funds as trade tide lifts shipping From Reuters.com: Forced to abandon ship after mistiming their investments five years ago, hedge funds are venturing back in a bid to profit from growing global trade flows. Around 90 percent of traded goods by volume are tran

  5. Investing - Hedge funds turn short on tech just as stock rally takes off, After biggest short, speculators slash bearish US bond bets as supply deluge looms[more]

    Hedge funds turn short on tech just as stock rally takes off From Newsmax.com: A key group of investors has just missed out on the biggest tech-stock rally since 2014. Hedge funds and other large speculators turned net short on Nasdaq 100 Index futures for the first time in 21 months, ac