Quant Macro Investing

Risk Taking Disciplined

Alpha advertising


Alpha advertising

Posted by Tracy Alloway on Sep 08 08:55.

As asset management houses look to stay sharp, constantly improve and deliver the alpha investors require — Inalytics, the specialist manager evaluation firm, continues its in-depth analysis into the identification of manager skill with the launch of a new whitepaper unveiled today [Monday]. Its latest research and two accompanying portfolio case studies use hard statistical evidence to provide analysis of where managers are strong (or weak) and where the gaps lie.

GLG Partners LP, the US-listed asset manager and long-standing client of Inalytics, co-authored the whitepaper on ‘identifying manager skill’. In order to show tangible working examples, GLG granted access to two of its portfolios to illustrate how the firm uses Inalytics’ research to provide objective feedback to its managers and traders as2 part of an internal process of continual improvement.

How generous of GLG. So what do we learn from its two portfolios?

An explainer first — Inalytics gauges fund managers’ performance via `Hit Rates’ and `Win Loss Ratios’. The first measures how many more decisions a manager gets right than wrong, and the second measures whether alpha from their good decisions offsets alpha lost from the poor ones. The average Hit Rate in Inalytics’ database is 49.6 per cent, meaning managers don’t even get six out of 10 decisions right. However, the average Win Loss Ratio is 102 per cent — which means bad investment decisions are offset by good ones — albeit by a small margin.

Here then, are the results for GLG’s European mandate portfolio (between July 2001 and March 2009):
The Hit Rate for this manager has been 53.1%, and the Win Loss Ratio is 120%, both well above the peer group average, although both have suffered since mid- 2008. The Manager has a higher Hit Rate and Win Loss Ratio than you would expect from chance alone.

The results of GLG’s second portfolio, with a global mandate, are slightly more lacklustre (between January 2004 and March 2009):
The alpha was generated by a Win Loss Ratio of 111%, which is in line with the peer group average and a Hit Rate of just slightly over 50%, which is above average of the other managers at 48.5%. The last three quarters reviewed saw a sharp downturn in results for the Heavily Overweight category, due to a Hit Rate of 42% and a Win Loss Ratio of 79%.

For those interested in further info on Inalytics’ methodology and details of GLG’s portfolio performance, the full white paper is in the Long Room.

September 9, 2009 - Posted by | Tools

1 Comment »

  1. Hey, great blog…but I don’t understand how to add your site in my rss reader. Can you Help me, please 🙂

    Comment by DennisVega | September 30, 2009 | Reply

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: