Sigma Analysis & Management – The Real Question Is Not Are Hedge Funds Good Or Bad, But What Is A Good And A Bad Way To Invest In Hedge Funds by Opalesque
Starting with CALPERS exiting hedge funds two years ago and NY City Pension, MetLife just recently, a lot of investors are not sure if hedge funds still matter? While Professor Luis Seco and Dave Rudd from Sigma Analysis understand the institutions who redeemed from hedge funds and their reasons, they also point out that maybe an “old” and “new” way of investing in hedge funds exist. Today’s investor-owned managed account platforms identify the better managers and enable better decisions on the investors’ side. Using the power of managed accounts, investors can now assess a manager by skill, not just returns. It also allows for advanced performance attribution and improved risk management. Therefore, investors must analyze which managers are making smart decisions, and not just believe in some picks from an “approved manager” list. These dimensions of adding and extracting intelligence from the managers’ investments, together with other vital benefits such as improved fees, transparency and control, are the reasons why today managed account investors get the better deal. Therefore, the pro-active, informed investor of the future benefits from both better offense and defense through managed accounts.
What are the true reasons when institutions go out of hedge funds? To answer this question, we may first have to address what investors should be doing, and what they aren’t doing when investing into hedge funds. Maybe the real question is not are hedge funds good or bad, but what is a good and a bad way to invest in hedge funds?
In Sigma’s view, a “real hedge fund” is a manager who produces Alpha, and this “Search for Alpha” is ongoing. With the right set up, Alpha-producers can be identified and utilised. Therefore, hedge funds matter “more than ever before”. In this context, Sigma’s 2008 experience with managed accounts was that “everything worked”: all assets were under control, and there were no negative surprises. “Structural Alpha” is thus added through managed accounts, but this also means that “black boxes” are increasingly a thing of the past. In this new paradigm, empowered investors demand real time information and drive (their own) decision making.
Sigma Analysis & Management Ltd. (Sigma) is a Toronto-based asset management firm that has been a pioneer in managed accounts, transparency services and smart risk analytics. Sigma was founded in 1999 to help advise institutional investors in hedge fund portfolio construction and risk monitoring. Sigma’s mission is to deliver world-class hedge fund research and operations with an elite group that delivers high-touch, value-add customized service in the hedge fund space.
Professor Luis Seco, Ph.D, is a co-founder and the President and CEO of Sigma Analysis & Management. He started his career in financial risk management in 1996, while a Professor at the University of Toronto, creating the RiskLab, a research center that serviced the financial sector in Toronto in the area of risk management. Sigma started in 1999 as a spin-off of research activity at the RiskLab. He is currently the Director of the Mathematical Finance Program at the University of Toronto. Prof. Seco holds a Ph.D. from Princeton University, and he was the Bateman Instructor at the California Institute of Technology. He has authored numerous papers in financial risk management, investments and market models, has won a number of research awards and is an active participant in professional organizations, including AIMA and PRMIA.
David Rudd is co-founder, Chairman and Chief Compliance Officer of Sigma. He has 34 years experience in the investment and derivative industry beginning with Merrill Lynch and has been an advocate for informed institutional allocations to the alternative investment space. He initially worked as an analyst at a Canadian Pension consulting firm, Tomenson Alexander, before moving to Merrill Lynch. While in the investment industry he was Vice President of Dean Witter, and then Senior Vice President of Refco Futures Canada. He was also Chair of the Montreal Exchange Futures Committee and was on the Board of the Toronto Futures Exchange, now part of the Montreal Futures Exchange.
In the late 1990s he commissioned a study on allocation methodologies to assist institutions in the selection of hedge fund investments. This study, conducted by Prof. Seco of the University of Toronto led to the formation of Sigma Analysis & Management.