Archive for September, 2010

New York, NY, September 28, 2010 – TradeStation Securities, Inc. (Member NYSE, FINRA, NFA and SIPC), through its TradeStation Prime Services division, recently launched its NYSE Floor operation, including its outsourced trading desk, to help meet the growing demand of hedge funds and other institutional clients who seek to enhance their transaction pricing while providing additional liquidity. The NYSE trading floor features a parity based model when allocating executions allowing market participants to operate a diverse strategy mix including both classic institutional order flow and higher frequency models.

As described by NYSE Euronext on its website, “The NYSE is the only market to offer both high-tech automation for low latency and complete anonymity along with high-touch participation by market professionals to provide orderly opens and closes, lower volatility, deeper liquidity and price improvement opportunities throughout the trading day. This unique combination provides customers with the highest levels of market quality and competitiveness…Brokers on the NYSE Trading Floor leverage their physical point-of sale-presence with information technologies and order management tools to offer customers the benefits of flexibility, judgment, automation and anonymity with minimal market impact.”

As a self-clearing, agency-only broker-dealer now with NYSE Floor capabilities, TradeStation can leverage this technology and its membership by offering, through their Floor Brokers, access to the NYSE Floor along with over 40 pools of liquidity away from NYSE. Active traders, including spread traders and derivatives traders can also integrate their trading strategies into algorithms that Floor Brokers access from their Hand Held Devices that are engineered specifically for the NYSE parity based model.

For additional information about TradeStation Prime Services, please visit:
http://www.tradestationprime.com/.

About TradeStation Prime Services, a division of TradeStation Securities, Inc.

     TradeStation Prime Services, a division of TradeStation Securities, Inc., was founded to serve the needs of start-up to mid-sized hedge funds, registered investment advisers, professional traders and asset managers who need quality prime brokerage services, including execution and clearance, securities lending, capital introduction, and “incubation” services.  Clients are offered electronic trading and decision-support platforms, including TradeStation, to analyze their trading strategies and automate or manually place their orders, and may avail themselves of the firm’s NYSE floor membership, which allows it to execute trades on behalf of clients on the NYSE floor as well as in other market centers from its NYSE floor booth/outsourced trading desk.  TradeStation Prime Services is located at 400 Madison Avenue, New York, New York.

TradeStation Securities, Inc. (Member NYSE, FINRA, NFA and SIPC) is a licensed, self-clearing securities broker-dealer and a registered omnibus-clearing futures commission merchant, and has memberships or similar approved status (as well as direct connectivity for both market data and order execution) with BATS Z-Exchange, Boston Options Exchange,Chicago Board Options Exchange, Chicago Stock Exchange, EDGA Exchange, EDGX Exchange, International Securities Exchange, NASDAQ OMX BX, NASDAQ OMX PHLX, The NASDAQ Stock Market, NYSE Arca and NYSE Amex.  For futures accounts, TradeStation connects directly (for both market data and order execution) with the CME Group, Eurex Group and ICE Group (U.S. and Europe) exchanges. TradeStation is a clearance member with DTCC and OCC for equities and options, serves its futures accounts on an omnibus clearance basis, and also introduces institutional equities accounts to J. P. Morgan Clearing Corp., as clearance agent.  TradeStation Securities has offices in South Florida, New York, Chicago and Dallas, and an affiliated introducing broker (TradeStation Europe Limited) in London.

About TradeStation Group, Inc.

TradeStation Group, Inc. (NASDAQ GS: TRAD), through its principal operating subsidiary, TradeStation Securities, Inc., offers the TradeStation platform to the active trader and certain institutional trader markets. TradeStation is an electronic trading platform that offers state-of-the-art electronic order execution and enables clients to design, test, optimize, monitor and automate their own custom Equities, Options, Futures and Forex trading strategies.  TradeStation Group’s other operating subsidiaries are TradeStation Technologies, Inc. and TradeStation Europe Limited.

Nature of this Announcement 

This announcement is made on a limited basis through hedge fund and other institutional trader
websites and similar media for promotional/marketing purposes, to educate potential customers
of TradeStation Prime Services about its product and service offerings, and is not intended to be
an investor relations or public disclosure document for TradeStation’s publicly-traded holding
company (TradeStation Group, Inc.).

Related to: TradeStation Buy-Side Institutional Program

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Listed Hedge Funds

Listed Hedge Funds Continue to Struggle

Listed hedge funds have struggled in the last two years and the listed funds of hedge funds is in an even more dismal state, as a recent article in eFinancial News explains. Despite the listed hedge fund sector expanding from 14 to 60 from 2004 to 2008, funds are still trading at an average discount to net assets of 18 percent.

The other eight – from the RAB Capital Special Situations fund that floated on the London Stock Exchange’s Alternative Investment Market in May 2005 to the Brevan Howard BH Global fund that floated on the London Stock Exchange almost exactly three years later – all trade at a discount.
One of them, the MW Tops fund run by UK hedge fund manager Marshall Wace, was put into voluntary liquidation by its investors at the end of last month.

The listed fund of hedge funds sector has fared even worse. Having expanded from 14 funds to 60 between 2004 and 2008, with assets growing almost tenfold, the sector is now trading at an average discount to net assets of 18%, according to stockbrokers at Royal Bank of Scotland. The sector, in the jargon, is deeply underwater.

Investors, largely private clients, were attracted to listed hedge funds and funds of hedge funds in the mid-2000s through a combination of familiarity with investment trusts and desire to gain exposure to hedge funds. Source

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Tags: listed hedge funds, listed hedge fund, hedge funds, hedge funds stock exchanges, hedge funds indexes, hedge funds stock listing, hedge funds public

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Hedge Funds Ireland Debt

Irish Paper Accuses Hedge Funds of Betting Against It

Hedge funds have faced a lot of criticism for its supposed role in the collapse of Greece. Now, as Ireland’s economy struggles, accusations have emerged in at least one Irish newspaper that hedge funds have been shorting Ireland’s debt.

Related to: Hedge Funds Ireland Bets

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Tags: hedge funds, hedge funds in Ireland, Irish hedge funds, hedge funds Ireland debt, hedge funds Irish debt

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New York (HedgeCo.net) Global hedge fund manager Barclays Wealth reports that retirement is being rejected by a new breed of wealthy workers – the ‘Nevertirees’ – who want to carry on working for as long as they are able.

Ledbury Research surveyed over 2,000 high net worth individuals, all of whom had over $1.5m/1m in investable assets, 200 had more than $15m/10m. Respondents came from 20 countries across Europe, North America, South America, Middle East and Asia Pacific.

Sixty percent of wealthy individuals polled in a global survey say that they plan to become a Nevertiree, shunning traditional retirement, instead continuing to work, start businesses and take on new projects in their later years.

The report, the 12th in the Barclays Wealth Insights series, is based on a survey of more than 2,000 high net worth individuals, who were asked to consider what retirement and later life means to them.

The findings show that the concept of nevertirement is expected to grow over the coming decades, with over 70% of respondents under the age of 45 saying that they will always be involved in some form of work.

In particular, 75% of U.S. respondents plan to work part time after they have stopped working permanently, seven percent more than the global average. Specifically, 32% plan to work between five and 20 hours per week in “retirement”, and seven percent plan to work more than 20 hours per week, “simply reaching the normal age to retire” is not at all important in determining when they stop working.

Only 40% of U.S. high net worth individuals “completely agree” that they are “totally confident” in having enough money for retirement, with another 37% “slightly agreeing”. Only 48% of U.S. high net worth individuals would completely classify themselves as financially secure.

When planning for retirement 35% of U.S. wealthy feel that the rate of tax they have to pay is predictable, compared to 58% of Latin American high net worth individuals and 73% of wealthy individuals in Switzerland.

Further, one in ten of the wealthiest surveyed do not agree that they have enough money for retirement (greater than $15m in investable assets). Among the global wealthy who are already retired, only 51% agree they are completely confident in having enough money for their retirement.

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We are happy to announce that the Hedge Fund Law Blog has been nominated for the LexisNexis Top 25 Business Law Blogs of 2010.  We thank our audience for reading and being engaged in the discussion, and of course for the nomination.

Call to Action!

We are not yet a Top 25 Business Law Blog – the next step is to submit a comment to LexisNexis to let them know about Hedge Fund Law Blog.  After the public comment period and voting ends (October 8th), the LexisNexis board of editors will select the Top 25 based in part on the public comments.  The final announcement is expected to be made on October 31.

To vote for the Hedge Fund Law Blog please go here and fill out a comment.

Other Blogs

There are a number of very good blogs which are also nominated.  The blogs that I actively read include:

• Compliance Building by Doug Cornelius
• Securities Law Prof Blog
• Startup Company Lawyer

Other blogs I that are in my RSS reader and which I think highly of:

• Ten Seconds into the Future
• Reverse Merger & SPAC Blog
• Jim Hamilton’s World of Securities Regulation
• BD Law Blog

Many thanks again for reading.

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“Two years after the collapse of Lehman Brothers Holdings Inc., investors still aren’t willing to pay more than liquidation value for banks in developed nations.”
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Correlation? Assets moving in synchrony? Correlation is a misleading statistic of little help in measuring or achieving diversification. Highly correlated funds CAN hedge a portfolio but some uncorrelated strategies are too dependent on underlying markets. Below is a hypothetical hedge fund with +1.00 correlation to the S&P500. Absolute returns every year and +17.65% CAGR but correlated PERFECTLY with a risky index fund which lost money! Clearly the product diversified despite that pesky correlation.

Diversification was said to be a “free lunch” but that has been arbitraged away, at least in traditional risky asset classes. 2008 showed how important it is to diversify the right way not diworsify the old way. Sadly correlation is still used as a critical input for portfolio construction and risk management. During crashes, correlations tend to rise but now it occurs in “normal” market conditions as well, adding to risk NOT reducing it. Securities can move together due to herding, ETFs and algorithmic trading. The passive indexing meme means benchmark components go up or down regardless of value whether they are stocks, bonds or commodities. The best way to diversify a long is with a short NOT another long.

The omnipotent correlation matrix drives much portfolio “optimization”. A bunch of incorrect inputs from data dredging history whose forward-looking output is even more error prone. Garbage in, garbage squared out. Correlation is a bad measure of magnitude. On up market days most stocks may go up but they don’t rise by the same percentage. Relative value strategies take advantage of varying price moves even if in the same direction. I don’t mind if an investment has a correlation of +1, 0, -1 or anything in between. It’s irrelevant. I do care it has minimal dependence on anything else in the portfolio. Sadly for traditional investors MVO and CAPM have been shown to be simple, elegant and completely useless.

“Modern” portfolio theory requires three sets of wild guesses marketed as capital market assumptions: expected returns, expected volatilities and expected correlations. Scary how trillions are invested in this weird way and the poor “results” speak for themselves. Those variables aren’t robust, stable or likely to be accurate in constructing a long term portfolio. I’ve kept track of such facile forecasts and the tea leaf reading “experts” who made them. Pretty sad outcomes but those fortune teller numbers still keep being used. We are ALL affected by assets being (mis)allocated in this failed framework. Unlike the crystal ball gazers I don’t try to predict markets instead I find mispriced securities and safer strategies whose returns outweigh risks.

It is not surprising conventional wisdom has performed so badly with “Nobel” prizes awarded for such “efficient”, mean variance “optimized”, CAPM nonsense. Past asset class returns are no indication of the future over any time horizon including centuries, standard deviation does not measure risk and correlation gives no insight on risk factor dependence. So why is this stuff still used? Everybody knows everything so the markets are random right? CMA causes almost as many problems as actuarial assumptions. If you keep doing what you have always done, you receive what you always get: growing liabilities and declining assets! Safer to go with skill-based strategies that offer absolute alpha not repackaged beta.

Beta is usually cited as a measure of volatility. But it’s really correlation adjusted for the relative volatilities of the fund and benchmark. You can have a low beta fund that is high risk and a high beta security LESS risky than the market. Idiosyncratic risk isn’t a risk; it’s the idiosyncratic alpha you want. Alpha and absolute returns are not the same. The textbook calculation of beta and alpha is based on correlation which, as the example above shows, isn’t helpful. The identification of true beta – dependence on underlying risk factors – and true alpha – value added through skill not luck – is more complicated. I prefer calculating co-relation and association metrics not coRRelations. High correlation shows the markets are even more inefficient.

Dispersion? Every month reports come out on how “hedge funds” have performed on average. Those numbers are meaningless with such a disparity of skills and zero-sum nature of alpha. Most of the mainstream strategies are too well-known now so it is not surprising AGGREGATE returns are tending to zero. Skill is rare. The average hides a wide range of numbers from managers performing very well to many that are not. 2008 saw huge dispersion. The average hedge fund lost 20% but 3,000 made money. True diversification costs 2 and 20 and the quantitative and qualitative resources to isolate manager skill from luck. The basic arithmetic of covariances and variances just don’t make the grade.

The best sources of low dependence are time and space diversification. High frequency trading continues to perform well. Amazing how the majority of portfolios still don’t allocate to such a reliable source of alpha. Last decade was great and returns have also been good this “difficult” year. If algos do constitute 65% of all trading in liquid securities, perhaps a model portfolio should have 65% allocated to HFT? Even after so many years of superior risk adjusted returns most investors avoid high frequency strategies. Perhaps buy and hold for a few milliseconds is the natural evolution from buy and hold for a few decades. Everything operates on short time horizons nowadays.  If you want to learn more about hedge fund companies, how they operate and more information, check out this website.

There is a big difference between good funds and bad ones. Emerging markets have also had high dispersion with frontier markets tending to outperform. Frontiers are less dependent on the world economy while the term “emerging markets” is often semantic arbitrage for countries that are actually developed. The old BRIC lost to the new BRIC but the SLIM has been the rockstar this year. Sri Lanka, Iran, Mongolia were missed by almost all international investment “strategists”. Could the geographic diversification strategy nowadays be to invest in places that do NOT have ETFs? It’s an Asian century but not in the most heavily hyped markets.

Unlike the unreliable, unskilled, unhedged trio of unknown FUTURE asset class statistics, I know that the best managers properly incentivized to work hard and apply rare skills to their money and yours will deliver in all possible scenarios over time. Changing markets and rising correlationare no excuse for not being able to make money. Of course no-one avoids losses sometimes which is why risk management and low similarity between strategies is important. Two funds might or might not be correlated but one can be vastly superior and safer than the other. Avoid managers dependent on the market and focus on skill-based absolute return strategies.

by Veryan Allen. Copyright

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“Rather than announcing massive bond purchases with a finite end, as they did in 2009 to shock the U.S. financial system back to life, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds.”
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More details on Fed POMO market interventions, referred to in the last post: “Here’s a nice chart from Olivier Jakob at Petromatrix, who is taking an increasingly broad view of market goings-on in his bid to interpret the energy complex — oil, gas, the lot — on a daily basis… It shows, as he notes, the scale and increased frequency of the Federal Reserve’s permanent open market operations (POMO).”
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CNBC (the infinitely more credible European edition) has run a stunning interview with Cazenove technical strategist Robin Griffiths in which the banker discusses such taboo items as the Plunge Protection Team’s intervention in the market for the month of September in a last ditch effort to keep stocks from tumbling following the horrendous August performance … “One of the reasons [for the surge] is POMO: what happens is the Fed buys Treasurys off the banks, the banks put the money into the market…That amount of money turns the algorithms up, then all the algo trading hits the market. Real life investment managers are not doing this buying. They know that equities are for losers.” And the stunner: “The S&P is being effectively goosed up by the Plunge Protection Team”…

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