Lyster Watson & Company has unveiled a ranking system that incorporates fund risk, return and strategy performance to identify superior hedge fund managers.
By examining more than 3,000 hedge funds across a range of hedge fund strategies, Lyster Watson True Alpha calculates a positive ranking number for funds outperforming their strategy or a negative ranking number for those under-performing their strategy to capture each fund's risk-reward trade-off.
Robert Watson, Chief Investment Officer and co-founder of New York-based Lyster Watson, said: "Lyster Watson True Alpha is an important and unique new tool for institutional hedge fund allocators to use when determining past performance relative to their peers and strategy and get at the essence of managers' ability to perform and manage risk in different market environments, now and in the future.
Marc Freed, Managing Director at Lyster Watson and developer of Lyster Watson True Alpha, unveiled the new ranking system last week at the Third Annual GAIM Invest and Fund of Funds conference in Geneva, Switzerland.
Freed said: "Lyster Watson True Alpha is superior to other measures because it balances the incremental risk and incremental return that a fund manager generates. It highlights managers' ability to make hay while the sun shines, to take advantage of opportunities when they are available, and to avoid unrewarding risk when market opportunities are scarce."
He added: " Lyster Watson True Alpha is an application of the Pythagorean Theorem, which defines the relationship between the lengths of the sides of a right triangle. The geometry is simple but the resulting ranking is powerful when applied to selecting hedge fund managers."
"When applied to hedge funds, Lyster Watson True Alpha helps answer the core question: How do we identify hedge fund managers who take advantage of opportunities when they arise and who protect capital when opportunities are limited?"
Founded in 1992, Lyster Watson & Company is an SEC Registered Investment Advisor that oversees USD 1.3 billion in hedge fund assets. The firm offers a multi-faceted alternative investment platform to its clients including hedge fund-of-funds and customized investment vehicles. The firm uses a disciplined, process-driven selection process together with more than a decade of experience to construct portfolios that match the risk-reward expectations of its clients. This process includes Lyster Watson True Alpha, a patent-pending ranking system that incorporates fund risk, return and performance to distinguish superior managers from inferior managers. Based in New York City, Lyster Watson employs 24 professionals.