Wed, Oct 26, 2016
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. Opalesque Exclusive: Ex-SAC manager re-emerges with market neutral hedge fund[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: A manager re-emerged from the SAC battleground last year to launch his own hedge fund under the umbrella of New York-based investment firm Endicott Group.

  2. North America - Hedge-fund manager Kyle Bass says the U.S. is on track for stagflation, Billionaire hedge fund titans Dinan, Lasry on election, markets and best investment ideas[more]

    Hedge-fund manager Kyle Bass says the U.S. is on track for stagflation From Kyle Bass, founder of Hayman Capital Management, on Wednesday warned that the U.S. is headed toward so-called stagflation. Stagflation is typically described as persistently high inflation and hi

  3. David Einhorn speaks on passive investing, Mylan, his cheapest stock, the Fed[more]

    From Greenlight Capital hedge fund manager David Einhorn (Trades, Portfolio) joined nine other famed investors on Tuesday to talk about stocks at the annual Great Investors’ Best Ideas Investment Symposium in Dallas. Presenters at the annual conference typically pitch one or severa

  4. Investing - Fund set up to buy illiquid hedge fund stakes finds plenty of opportunities, Lansdowne's Roden says likes animal genetics company Genus[more]

    Fund set up to buy illiquid hedge fund stakes finds plenty of opportunities From As ValueWalk reported back in February, earlier this year Andrew Lawrence set out to raise $250 million to $500 million for a fund that will buy stakes in hedge funds that have suspended redem

  5. Other Voices: Follow the advice of investment consultants - I think not[more]

    Mark Rzepczynski, Founding Partner, Chief Investment Officer AMPHI Research and Trading, writes on Harvest Exchange: Investment consultants are a force to the reckoned with in the pension world. They advise and drive many pension decisions around the globe. Consultants literally control trillion