Course Director: Jacob Schmidt
Since 2009 the hedge fund industry now looks very different. Due to the poor performance of many funds, redemption issues and the Madoff scam, investors, service providers and other market participants interested in hedge funds will ask questions as to when and whether to invest into hedge funds. Key will be how to measure risks and returns and to what extent analysts can rely on past data alone. The trainer, Jacob H Schmidt, will address all these issues in the course as well as interactive discussions between trainer and delegates, case studies and exercises.
Introduction to Performance Analysis
The building blocks NAV and VAMI; all you need to calculate return, risk and ratios; specifics in hedge fund performance numbers; single analysis vs. benchmarking and peer group analysis; how to choose the right benchmarks and peers; calculation of daily, weekly, monthly and total return; deriving NAVs or prices off returns.
Exercise Using Laptops: Delegates will use data from different hedge funds and indices and compute returns, NAV and VAMI using Excel spreadsheets. The practices of calculating as well as understanding the relationship between numbers are key objectives. This will be done against the background?
How to calculate Annualised Averages
Delegates will be introduced to the concepts of different averages (the arithmetic and geometric averages) such as annualised geometric average, 12-month rolling arithmetic average, 12-month rolling geometric average, Quarterly Arithmetic Average (AQ), Quarterly Geometric Average (GQ), Monthly Arithmetic Average (AM), average positive return and average negative return. Why rolling analysis is the superior way to analyse hedge funds.
How to Calculate and Explain How to calculate and explain negative performance: Largest Drawdown (LD), Largest Negative Streak (max. loss in months), Longest Recovery Period, Average of 5, Largest Drawdowns. Which drawdown number gives the best insight into risk?
Calculating monthly, annual and rolling volatility. Calculation and use of Downside Deviation (DD) by mean and Downside Deviation by risk free. Which deviation is best for identifying risk.
Analysis of Higher Momentums
Explanation of Skew and Kurtosis. What do these measure really tell you?
Case Study: Pros and cons of the use of these parameters. Delegates will be able to understand the value of higher momentum analysis in hedge funds and indices.
Regression and Correlation Analysis
How to use correlation (static and rolling) to identify relationships among hedge funds, benchmarks and indices; Calculation of the Alpha and Beta of a fund; The R^2 (Coefficient of determination) and its use in hedge fund analysis.
Ratios Introduction to ratios: Sharpe Ratio, Sortino Ratio (by mean), Sortino Ratio (by risk free), MAR Ratio. Static versus dynamic/rolling analysis. Which is the correct risk free rate? How to compute and use the ratios. Pros and cons.
Exercise: Using different ratios. Delegates will be given hedge fund data, indices and benchmarks and be asked to compute different static and dynamic ratios and explain the outcomes.
The Omega Ratio
In this session we will discuss the relatively new concept of the Omega ratio and take a critical approach towards this new measure. How to calculate and use it. How can it help investors in identifying 'hot' funds?
Statistical Tables versus Graphs Advantages and disadvantages of pictures over numbers. Delegates will be introduced to the power of graphical depiction and the risk of the analysis of numbers in table format.
Charts and Basic Chart Analysis How to use charts and chart analysis in relation to hedge funds. Which indicators work and which are best avoided.
Case Study: Using Moving Average and Other Trend Indicators. In this case study delegates will be able to apply traditional chart techniques to the hedge fund world in order to derive signals for the purchase or sale of hedge funds.
What to do with new managers/funds which have no or only a short track record? How to compare funds and benchmarks with different track records? The benefits and pitfalls of indices.