Florida Roundtable: The Tyranny of the Short Term
Sign up here for our free Roundtable Scripts - get this unique intelligence by email as Opalesque publishes them:
Many investment strategies make sense only if they are held over a full investment cycle, but the challenge professional asset managers have is that psychology often weakens the investors' conviction when volatility kicks in.
Drawdowns have become the single biggest risk parameter investors for investors, rather than Sharpe ratio. Investors look at their mark-to-market gains and any loss from the peak turns into pain. This peak to trough drawdown versus annualized returns is also called the pain indicator. If that drawdown is vastly more than the annualized returns, investors lose their confidence in the strategy. If after a deep loss the strategy bounces back, a lot of people will miss the rally because they threw in the towel and walked away before that. This happens not just with alternative investments, but also the long only space.
This Roundtable discusses two factors that exacerbate this problem. First, investors today tend to succumb to a constant overload of the “wrong” information. Many of those media the investors use talk about trading on a day by day basis, and professional investment managers believe investors shouldn't be focusing on this type of information at all, because the incessant inflow of short term information usually carries investors away from looking at the long term perspective.
Why 80% of investors ask the wrong questions when evaluating a manager
The other fundamental problem comes from the fact that most people managing vast pension assets as well as their advisors and consultants have never traded, certainly not alternative investment strategies. This can also distort a proper evaluation of certain investment styles and trades, and deeply affects how certain institutions and their consultants screen, evaluate and invest in external investment managers.
Daniel Ades believes that 80% of investors he meets ask the wrong questions when evaluating a manager. This Roundtable highlights why this is the case, what would be some of the “right” questions, and also critically examines the role of consultants and their dismal lack of actual trading experience, particularly in alternative strategies.
The Roundtable took place on December 14th 2012 at Wells Fargo Miami office with:
The Opalesque Roundtable Series offers unparalleled intelligence on the most important global hedge fund jurisdictions and their players. The Roundtable Series is a free publication from Opalesque and is continually updated. Please scroll down to view the full selection of our Roundtables - covering the globe!
Other Opalesque Roundtables in Florida
Opalesque Roundtable Series - A Catalogue of Intelligence on Global Hedge Fund Centers: