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Regulatory Disclosure of Short Positions : Yes, But With Caveats

January 9, 2009

Analysis of:Fund managers fight tougher disclosure rules | www.ft.com

Disclosing short positions to regulators is, in principle, a noble idea, but the devil will be in the details. Lack of transparency abets the selfish motivations of free-riders (either humans or computer algorithms) who have no genuine insight into a company that warrants their own short-sale. More importantly, this lack of transparency exacerbates market movements to the point where the validity of short-selling as a useful investment management tool is questioned and debated in the court of hearsay. On the other side of the ledger, disclosure can meaningfully impair the implementation of a manager's strategy -- through mimicry and the resulting market impact. This is a valid concern (irrespective of short or long positions).

Deconstructing Alpha

January 15, 2008

Analysis of:And God created alpha | www.economist.com

The methodical attribution of observed returns to particular factors is long overdue, and the Lo-Patel paper is another insightful contribution to the concerns over fees vs performance for hedge funds. As an additional data point for practitioners, research shows that, beyond asset selection and allocation, as much as 50-250 basis points in performance can also be attributed to the manager's "operational quality" (ie, the sum of organizational competencies that enable the effective translation of investment ideas into expected results). Implementation shortfalls (in the range of 50-250 bp's) arise when the investment manager's operations (spanning research and trading through to cash and securities settlement) cannot capture the returns inherent in that manager's strategies.

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