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New Managers November 2012

Peter Urbani' Statistics - Missed opportunities by large managers

This month we look at the performance of the Equity Long and Short Picks by the top 696 large hedge funds represented in the Goldman Sachs VIP Hedge Fund Index during Q3 2012.

Goldman Sachs calculates both Long Basket and Short Basket VIP Indices. Both Indices contain 50 stocks. Weights in the Long Basket are proxied by the frequency with which the stocks appear in the top 10 holdings of the underlying universe of hedge funds. Weights in the Short Basket are proxied by the $ Value of the shorts. The results are published quarterly by Goldman Sachs in their Quarterly Hedge Fund Trend Monitor.

For the purposes of this article we have used the Goldman Sachs data derived from 13F Filings and recalculated the results using both the above-mentioned weighting system and an equally weighted long and short basket. We assume Longs and Shorts are matched with both accounting for 50% of the overall Long Short Portfolio.

In addition, we also calculate the Portfolio Opportunity Distribution (POD) for each of the baskets. The POD method is a methodology popularised by Ron Surz and can be thought of as a Monte Carlo simulation of possible portfolios and returns built from the same underlying selection universe but with random weights. The distribution of Portfolio returns generated by this method represents the range of possible portfolios that might have eventuated from the same selection universe or Opportunity set had different weights been used.

What the findings show for Q3 is fairly unequivocally that the Long positions taken by the underlying managers were generally better than those of the broader underlying market as proxied by the S&P500. However, most funds did not reach the potential returns that the PODs indicated were availabl......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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