Focusing on the wide range of hedge fund strategy choices and their associated challenges and risks, this title presents a wealth of research that attempts to guide the reader past the potential pitfalls and develop thier risk assessment skills. Schachter presents cutting-edge research on hedge funds with broad coverage of investing, risk management and portfolio allocation and in-depth analysis on a variety of topics including VaR estimation, illiquidity and dynamic investment strategies. Important differences between approaches to hedge funds and standard investment choices are explored so that the reader can accurately compare and measure the pros and cons of various risk management strategies and better assess whether or not to follow a particular strategy. In addition, hedge fund investors will be better equipped to adequately measure and weigh risk against benefits in order to optimise their asset allocations to hedge funds. Finally, the title's accessible format explains technical material in detail throughout the text, making the title ideal for readers with only moderate technical knowledge.
Barry Schachter is Managing Director of Risk Management at SAC Capital Advisors, LLC, a large hedge fund. He is also the creator of GloriaMundi.org, a non-commercial website for risk management. Barry is a Fellow of the Program in Mathematics in Finance at the Courant Institute of NYU. He is a member of the Blue Ribbon Advisory Panel of PRMIA and the Advisory Board of IAFE. He serves on the editorial boards of the Journal of Derivatives and Finance Letters. Prior to his current position, Barry has held positions with Caxton Associates, Chase Manhattan Bank, the U.S. Comptroller of the Currency, the U.S. Commodity Futures Trading Commission, and several universities. He has also been a consultant to the International Monetary Fund. He has published his research in academic and practitioner journals, and has edited a book on derivatives in banking. He has spoken widely on the topic of risk management. He received his Ph.D. from Cornell University.
CONTENTS Foreword, Tanya Beder, Caxton Associates LLC Intelligent Hedge Fund Investing: An Introduction Barry Schachter SECTION 1: CHALLENGES TO HEDGE FUND INVESTORS Introduction Barry Schachter 1. Hedge Funds vs Common Sense Harry M. Kat City University, London 2. Understanding Risks Embedded in Portfolios of Hedge Funds Boris Arabadjiev Credit Suisse Asset Management 3. Indexing Hedge Fund Indices Noel Amenc; Lionel Martellini; Mathieu Vaissie EDHEC 4. The Benefits and Costs of Illiquidity Hilary Till Premia Risk Consultancy, Inc 5. Threading a Rope Through a Needle: How Does a Large-Scale Investor Approach Hedge Funds? Leola B. Ross Russell Investment Group SECTION 2: MEASURING HEDGE FUND PERFORMANCE Introduction Barry Schachter 6. Maximum Drawdown: Further Results Emmanuel Acar; Amy Middleton Bank of America 7. The Alternative Sharpe Ratio Bernard Lee; Youngju Lee Imperial College; Allianz Hedge Fund Partners 8. AIRAP: Alternative Views on Alternative Investments Milind Sharma Merrill Lynch Investment Managers 9. How "Sharpe" are Funds of Funds? Youngju Lee; Bernard Lee Allianz Hedge Fund Partners; Imperial College SECTION 3: IDENTIFYING AND ESTIMATING HEDGE FUND RISKS Introduction Barry Schachter 10. Alternative Approaches to Estimating VAR for Hedge Fund Portfolios Turan G. Bali; Suleyman Gokcan Zicklin School of Business; Citigroup Alternative Investments 11. A Quantitative Analysis of Hedge Fund Style and Performance Claus Bang Christiansen; Peter Brink Madsen; Michael Christensen Aarhus School of Business 12. An Analysis of the Risk Factors Underlying Hedge Fund Returns John Okunev; Derek White Principal Global Investors 13. A Critical Examination of Historical Hedge Fund Returns Nolke Posthuma; Pieter Jelle van der Sluis ABP Investments; Free University Amsterdam and ABP Investments SECTION 4: HEDGE FUNDS IN PORTFOLIOS Introduction Barry Schachter 14. Optimal Hedge Fund Style Allocation Under Higher Moments Jean-Francois Bacmann; Sebastien Pache RMF Investment Management; Ernst and Young 15. Evaluating Gains from Diversifying into Hedge Funds Using Dynamic Investment Strategies Niclas Hagelin; Bengt Prambourg Stockholm University School of Business and the Swedish National Debt Office; Stockholm University School of Business 16. Evaluating Hedge Fund Investments: The Role of Pure Style Indices Francois-Serge Lhabitant Union Bancaire Privee