| |The attraction to private equity and other less liquid alternatives is clear from the Guide to Alternatives by JP Morgan Asset Management. The return profile is much higher for private equity and debt funds than more liquid alternatives and global bonds; however, the dispersion in returns is multiples higher than what can be expected from other public categories. … Read more The Desire For Private Equity – Return And Yield; But Time May Be Running Out
| |All alternative investments and hedge funds are not created the same. There is significant dispersion in their correlations with global bonds and equities. Some are better at diversification and others are good for adding returns. A recent Guide to Alternatives from JP Morgan Asset Management provides long-term correlations for alternatives and hedge funds for the post Financial Crisis period. … Read more Where are you getting diversification within alternatives?
| |As we better understand the return generation process, we are able to dissect any set of money manager or hedge fund returns into its component parts. At a high level, any money manager can be divided into a set of risk factors or premia and alpha or skill. As a general conclusion, researchers have found that as investors get better at identifying risk factors, the size of alpha declines. We are able to attribute more returns to specific risks so the amount that is leftover as skill declines. … Read more Risk premia versus hedge funds – Worth a look
| |One of the key problems with decision-making is that it is often simplified into either/or choices. “Yes/no”, “Go/No-Go”, is how we often focus our attention and make decisions. Life is easy when problems are framed as either black or white. For example, the Fed will either tighten or not tighten. Employment will either increase or decrease. The stock market will either rise or fall. These are phrased, in the end, as binary actions. Seldom will you hear a market pundit provide anything other than a binary choice problem. Forecasting is often viewed as being so hard that getting just the direction right may be more than enough to be successful. Unfortunately, framing uncertain forecasts as a binary problem is both near-sighted and flawed. … Read more Get out of the binary world – It is probabilities, baby!
| |Gary Klein is one of the great researchers in practical decision-making; however, he has been overshadowed by the behavioral bias revolution and the more popular work of Nobel prize winner Dan Kahneman. That is unfortunate and should be rectified. Klein focuses on naturalistic decision-making; the fact that decision-making in real life is significantly different than anything in a controlled environment … Read more Naturalistic decision-making permeates investment world
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