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Alternative Market Briefing

Comment: Alpha Beta? My head is spinning

Wednesday, October 07, 2009

By Damien Hatfield, founder of Hatfield Advisors, Sydney, Australia:

I recently attended the I&T Absolute Returns Funds Conference in Melbourne. As usual, Colin Tait, Greg Bright and team organised a great conference.

There was a lot of talk at the conference about Alpha Beta, Alpha Separation, Portable Alpha, yada, yada, yada. One of the emerging areas is the application of Hedge Fund Beta, which can be achieved through Hedge Fund Replication. Confused? Well so am I, and I've been around this business for 20 years.

One of the reasons why I am so passionate about the Hedge Fund Industry is that you meet some really interesting people. Early in my career I brokered and raised money for CTAs. Some of the CTAs were members of the "Turtle" group which was founded by Richard Dennis and Bill Eckhardt. The CTAs included Sjo, founded by Susan Sjo; Jerry Parker's Chesapeake; and EMC, amongst others.

These were the original trend-following CTAs of which Chesapeake became the most famous. 15% compound over twenty years. They operate outside of Richmond, Virginia, managing over $1 billion. If you were talk to Jerry about Alpha and Beta within his program, I'd suggest he would say you were mad. He generates a trade signal, say S&P 500 Futures, as a buy. Goes long and cuts out when the signal says sell. Sure there's Beta in there, if he's got the trade right, but do you think as a trader, he is considering beta within the total portfolio or eve......................

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