Title S32 - Black

500 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
500
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Title S32 - Black

  1. 1. Hedge Fund Replication in Asset Allocation & Risk Management November 16 th , 2007 Vassilis Karavas, Ph.D. Head of Portfolio Design Credit Agricole Structured Asset Management Frontiers in Hedge Funds And Proprietary Trading Forum
  2. 2. Disclaimers <ul><li>THIS MATERIAL HAS BEEN PROVIDED FOR INFORMATIONAL AND ILLUSTRATION PURPOSES, IS FURNISHED ON A CONFIDENTIAL BASIS, IS INTENDED ONLY FOR THE USE OF THE AUTHORIZED RECIPIENT AND MAY NOT BE DISTRIBUTED TO ANY OTHER PERSON WITHOUT THE PRIOR WRITTEN CONSENT OF CRÉDIT AGRICOLE STRUCTURED ASSET MANAGEMENT (“CASAM”), CRÉDIT AGRICOLE STRUCTURED ASSET MANAGEMENT ADVISERS LLC (“CASAM ADVISERS”), LYRA CAPITAL LLC (“LYRA”) AND CREDIT AGRICOLE STRUCTURED ASSET MANAGEMENT AMERICAS LLC (“CASAM AMERICAS”, AND TOGETHER WITH CASAM ADVISERS, CASAM, LYRA AND THEIR AFFILIATES, THE “CASAM GROUP”). THIS MATERIAL IS NEITHER ADVICE NOR A RECOMMENDATION TO ENTER INTO ANY TRANSACTION. THIS MATERIAL IS NOT AN OFFER TO BUY OR SELL, NOR A SOLICITATION OF AN OFFER TO BUY OR SELL, ANY SECURITY OR OTHER FINANCIAL INSTRUMENT. ANY OFFER OR SOLICITATION OF AN INVESTMENT IN ANY FUND MANAGED BY ANY MEMBER OF THE CASAM GROUP NOW OR IN THE FUTURE (THE “FUNDS”) MAY BE MADE ONLY BY DELIVERY OF THE FUND’S CONFIDENTIAL OFFERING DOCUMENTS (COLLECTIVELY, THE “MEMORANDUM”) TO QUALIFIED INVESTORS. AN INVESTMENT IN A FUND IS NOT SUITABLE FOR ALL INVESTORS. BEFORE MAKING ANY INVESTMENT IN A FUND, YOU SHOULD THOROUGHLY REVIEW THE MEMORANDUM WITH YOUR LEGAL, FINANCIAL AND TAX ADVISORS TO DETERMINE WHETHER AN INVESTMENT IN THE FUND IS SUITABLE FOR YOU. YOU SHOULD NOT RELY IN ANY WAY ON THIS INFORMATION. CERTAIN INFORMATION PROVIDED HEREIN IS OBTAINED FROM SOURCES, INCLUDING PUBLICLY AND PRIVATELY AVAILABLE INFORMATION, THAT THE CASAM GROUP CONSIDERS TO BE RELIABLE; HOWEVER, WE CANNOT GUARANTEE AND MAKE NO REPRESENTATION AS TO, AND ACCEPT NO RESPONSIBILITY OR LIABILITY FOR, THE ACCURACY, FAIRNESS OR COMPLETENESS OF THIS INFORMATION. INFORMATION IS AS OF THE DATE(S) INDICATED AND IS SUBJECT TO CHANGE. </li></ul><ul><li>PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. </li></ul><ul><li>THE FUNDS ARE UNREGISTERED PRIVATE FUNDS AND ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS. THERE ARE RESTRICTIONS ON TRANSFERRING FUND INVESTMENTS AND THERE IS NO SECONDARY MARKET NOR IS ONE EXPECTED TO DEVELOP FOR INVESTMENTS IN ANY FUND MANAGED BY THE CASAM GROUP. THE FUNDS HAVE HIGH FEES AND EXPENSES THAT WOULD REDUCE RETURNS AND OTHER SPECIFIC RISKS AS TO A PARTICULAR FUND’S INVESTMENTS AND STRATEGIES. </li></ul><ul><li>&quot;DOW JONES HEDGE FUND STRATEGY BENCHMARKS&quot; AND “DOW JONES BALANCED PORTFOLIO INDEXES” ARE TRADEMARKS OF DOW JONES HEDGE FUND INDEXES, INC. (&quot;DOW JONES&quot;). THE TRADEMARKS HAVE BEEN LICENSED FOR CERTAIN PURPOSES BY AIRT LLC. THE INSTITUTIONAL BENCHMARKS SERIESTM ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY DOW JONES OR ANY OF ITS AFFILIATES AND NEITHER DOW JONES NOR ANY OF ITS AFFILIATES MAKES ANY REPRESENTATION REGARDING THE ADVISABILITY OF INVESTING IN SUCH PRODUCTS. CASAM AND AIRT LLC CLAIM COPYRIGHTS IN ALL WORKS OF AUTHORSHIP CONTAINED IN THIS PUBLICATION AND ITS CONTENTS. </li></ul><ul><li>CERTAIN INFORMATION CONTAINED IN THIS DOCUMENTS REFLECTS THE OPINIONS OF THE PRESENTER AND SHOULD NOT IN ANY WAY BE PERCEIVED TO BE THE OPINIONS OF CREDIT AGRICOLE STRUCTURED ASSET MANAGEMENT. </li></ul><ul><li>THIS MATERIAL AND ITS CONTENTS ARE PROPRIETARY INFORMATION OF CASAM AND AIRT LLC AND AFFILIATES AND MAY NOT BE REPRODUCED OR OTHERWISE DISSEMINATED IN WHOLE OR IN PART WITHOUT PRIOR WRITTEN CONSENT. </li></ul><ul><li>CONFIDENTIAL — DO NOT COPY OR DISTRIBUTE </li></ul><ul><li>© 2007 CASAM & AIRT LLC. ALL RIGHTS RESERVED. </li></ul>
  3. 3. CASAM - Corporate Structure <ul><ul><li>100% Crédit Agricole subsidiary </li></ul></ul><ul><ul><li>Founded on 1st September 2005, Crédit Agricole Structured Asset Management is a joint venture equally owned by Crédit Agricole Asset Management (CAAM) Group and Calyon </li></ul></ul><ul><ul><li>International presence strengthened through the purchase of CASAM Americas (formerly Ursa Capital), a US player recognized for its expertise in managed accounts </li></ul></ul><ul><ul><li>The CASAM Group managed account platform, and each constituent fund, is subject to the oversight of CASAM Advisers LLC and Lyra Capital LLC, registered investment advisers pursuant to the U.S. Investment Advisers Act of 1940. </li></ul></ul>CASAM Americas 100% 50% Crédit Agricole S.A. 50% 100% CAAM Financial Solutions
  4. 4. CASAM – Key Figures at September 28 th , 2007 Breakdown of Assets by Activity Funds 3 ETF * Including Structured Employee Savings Schemes 76 Managed Accounts 89 “ Vanilla” Employee Savings Schemes 318 Structured Products 486 Total USD EUR Assets (Billion) 3.1 2.1 ETF 5.6 3.9 Managed Accounts 11.6 8.1 “ Vanilla” Employee Savings Schemes 51.7 36.3 Structured Products* 72.0 50.4 Total
  5. 5. CASAM Group Alternative Investment Solutions <ul><li>CASAM Group Managed Account Platform </li></ul><ul><ul><li>A customized solution for investors seeking the returns of alternative investments in a risk-controlled environment while satisfying requirements such as transparency and liquidity </li></ul></ul><ul><li>Dow Jones Hedge Fund Index Products </li></ul><ul><ul><li>Licensing agreement dating back to October 2003 </li></ul></ul><ul><ul><li>Dow Jones Hedge Fund Indexes uses Lyra’s investment methodology and platform, as the basis for its hedge fund indexes </li></ul></ul><ul><li>CASAM/CISDM Database </li></ul><ul><ul><li>Formerly the MARHedge database, the CASAM CISDM Database is the oldest CTA and hedge fund database in the market, providing research data for the hedge fund universe </li></ul></ul><ul><ul><li>The sole source of data for Barron’s monthly hedge fund and CTA league tables </li></ul></ul>
  6. 6. Why Hedge Fund Replication <ul><li>Hedge Fund Replication is: </li></ul><ul><ul><li>The ability to deliver the economic characteristics of a particular beta (traditional and/or alternative) </li></ul></ul><ul><ul><li>True alpha is too idiosyncratic and often volatile to be meaningfully replicated </li></ul></ul><ul><li>The asset allocation perspective </li></ul><ul><ul><li>Hedge fund performance is largely due to exposure to market factors (alternative betas) </li></ul></ul><ul><ul><li>The definition of alpha has changed to include less “beta” </li></ul></ul><ul><ul><li>Hedge fund replication allows for both asset allocation & portfolio risk management </li></ul></ul><ul><li>Institutional Portfolios </li></ul><ul><ul><li>Equity & Fixed Income exposure as primary holdings </li></ul></ul><ul><ul><li>New betas as part of the new primary holdings </li></ul></ul><ul><ul><ul><li>Hedge Funds as a source of alternative betas </li></ul></ul></ul><ul><ul><li>Institutional investors introduce or increase hedge fund exposure </li></ul></ul><ul><ul><ul><li>Primary concern remains the conservative approach to investing in hedge funds </li></ul></ul></ul><ul><ul><ul><li>Increased interest in transparency (managed accounts as a means of hf investing) </li></ul></ul></ul><ul><ul><ul><li>Hedge fund investing expertise is not always available in-house for institutional portfolios </li></ul></ul></ul>
  7. 7. What hedge fund Replication does offer … or does not offer <ul><li>Caution! </li></ul><ul><ul><li>Hedge Fund Replication ≠ Duplication </li></ul></ul><ul><ul><li>Investors should NOT expect an exact replica of the asset </li></ul></ul>
  8. 8. What hedge fund Replication does offer … or does not offer <ul><li>Caution! </li></ul><ul><ul><li>Exposure to the same underlying economic factors </li></ul></ul><ul><ul><li>does not necessarily mean same </li></ul></ul><ul><ul><li>performance or risk </li></ul></ul>Performance: 174mph Performance: 225mph Performance differential: 29.31%
  9. 9. What hedge fund Replication does offer … or does not offer <ul><li>Caution! </li></ul><ul><ul><li>Replication of the certain statistics does not imply </li></ul></ul><ul><ul><li>exposure to same economic factors </li></ul></ul><ul><ul><li>and/or </li></ul></ul><ul><ul><li>same performance over short periods of time </li></ul></ul>Performance: 140mph Performance: 140mph Performance differential: 0% 0-60mph: 9.2’’ 0-60mph: 7.1’’ Time differential (0-60mph) 2.1’’
  10. 10. Investors Approach <ul><ul><li>Investors should be wary and examine the means of replication and what is actually offered through that investment vehicle </li></ul></ul><ul><ul><li>Important to understand what exactly needs to be replicated – different techniques offer different replicating attributes </li></ul></ul><ul><ul><li>Examine the fit to the entire portfolio, risk management, and cost </li></ul></ul>
  11. 11. Manager-based Hedge Fund Replication <ul><li>Manager Based </li></ul><ul><ul><li>Replication via direct investment to hedge fund manager or managed accounts </li></ul></ul><ul><ul><li>Investable Indices – Dow Jones, HFR, CS/Tremont, FTSE, etc. </li></ul></ul><ul><li>Benefits to Portfolio Management </li></ul><ul><ul><li>Low cost access to alternative betas </li></ul></ul><ul><ul><li>Liquidity </li></ul></ul><ul><ul><li>Daily NAV (when based on managed accounts) </li></ul></ul><ul><ul><li>Easy integration to the overall asset allocation model </li></ul></ul><ul><ul><ul><li>In a core-satellite approach, alternative betas are often met in the core portfolio </li></ul></ul></ul><ul><ul><li>Can be used as the Main allocation to hedge funds or as the Core hedge fund portfolio </li></ul></ul><ul><ul><li>Institutional type products that do not require the extensive expertise of hedge fund allocators </li></ul></ul><ul><ul><li>Greater flexibility to product creation </li></ul></ul><ul><ul><ul><li>Structured Notes (CPPI’s, Options etc) </li></ul></ul></ul><ul><ul><ul><li>Participation in tax efficient structures/products </li></ul></ul></ul>
  12. 12. Factor-based Hedge Fund Replication <ul><li>Factor Based </li></ul><ul><ul><li>Replication of the alternative betas using factor models that replicate certain economic factors and allow for exposure to them </li></ul></ul><ul><li>In Portfolio Management </li></ul><ul><ul><li>Low cost access to alternative betas </li></ul></ul><ul><ul><li>Liquidity is dependent on the underlying assets </li></ul></ul><ul><ul><li>Particularly useful for asset allocation models based on macro-economic data and views – More difficult to incorporate in an active portfolio with many moving pieces </li></ul></ul>
  13. 13. Distribution-based Hedge Fund Replication <ul><li>Distribution Based </li></ul><ul><ul><li>Emphasis on statistical behavior instead of sources of return </li></ul></ul><ul><li>In Portfolio Management </li></ul><ul><ul><li>Low cost to modifying portfolio behavior over time </li></ul></ul><ul><ul><li>Time is important for replication </li></ul></ul><ul><ul><li>Liquidity depends on the underlying assets, but can be high </li></ul></ul><ul><ul><li>Can be used in asset allocation models with predetermined behavior over time </li></ul></ul><ul><ul><ul><li>Market dislocations may affect the statistical behavior </li></ul></ul></ul>
  14. 14. Security-based Hedge Fund Replication <ul><li>Security Based </li></ul><ul><ul><li>Replication via direct investment to liquid securities </li></ul></ul><ul><ul><li>Model driven allocations – quantitatively selected </li></ul></ul><ul><li>Benefits to Portfolio Management </li></ul><ul><ul><li>Low cost access to alternative betas </li></ul></ul><ul><ul><li>Highly liquid investments </li></ul></ul><ul><ul><li>Easy to participate on the long and short side as stand alone investment or as a hedge </li></ul></ul>Beta Hedge Beta exposure
  15. 15. Risk Management & Portfolio Selection <ul><li>Risk Management </li></ul><ul><ul><li>Ability to take control of the portfolios exposure to economic factors & adjust at a low cost </li></ul></ul><ul><ul><li>Addresses actively or passively the liquidity concerns </li></ul></ul><ul><ul><ul><li>Direct investment to provide exposure </li></ul></ul></ul><ul><ul><ul><li>Overlay to hedge exposures during market dislocations </li></ul></ul></ul><ul><ul><li>Ability to create “Look through” products – currently available only in managed account based investments </li></ul></ul><ul><ul><ul><li>Particularly important to certain regions where Basel II has been implemented </li></ul></ul></ul>
  16. 16. Conclusions <ul><ul><li>Facilitate access to hedge fund investing. Choice of </li></ul></ul><ul><ul><ul><li>Strategy betas </li></ul></ul></ul><ul><ul><ul><li>Statistical properties </li></ul></ul></ul><ul><ul><ul><li>Economic factors </li></ul></ul></ul><ul><ul><ul><li>Combination </li></ul></ul></ul><ul><ul><li>Lower cost of entry </li></ul></ul><ul><ul><li>A new era in </li></ul></ul><ul><ul><ul><li>Hedge fund investing </li></ul></ul></ul><ul><ul><ul><li>Hedge fund based products </li></ul></ul></ul><ul><ul><li>Ability to hedge Hedge Funds (hedge 2 ?) </li></ul></ul>
  17. 17. Contact CASAM CASAM Advisers LLC Two Grand Central Tower 140 E. 45th Street, 16th Floor New York, NY 10017 Tel : (212) 277-6440 Fax : (212) 277-6441 [email_address]

×