Replication out at AHL

The FINalternatives website carried a story from Financial News on AHL this week:


“The Man Group’s flagship AHL strategy has seen eight employees, including its lead algorithmic trading technologist and an academic hedge fund-replication specialist, leave the firm.


“Chetan Kotwal, the technologist, and Helder Palaro, the hedge fund-replication expert, have both left Man. Another academic, Harry Kat, has also left, along with five other more junior employees: researchers Yochen Maydt and Steven Piron, traders Tom Ryan and Rebecca Aston, analyst Will England and algorithmic trading systems developer.”


The news is interesting that AHL were seeking to build a hedge fund return replication capability. Parent Man Group sold lots of product which combined the AHL Fund with other Man Group single-manager or multi-manager fund products. The guaranteed funds were often a combination of AHL with fund of funds Glenwood. Glenwood returns were never fantastic, so eventually other funds were tried in combination with AHL, and Glenwood was subsumed into Man Glenwood.


Has AHL been working on hedge fund replication strategies to enable Man Group to offer AHL in a guaranteed product in combination with industry typical returns? If so it would not reflect well on the confidence of Man Group management in other in-house managers, either single manager or multi-manager.


As long ago as 2006 Dutch academic Harry Kat suggested that investors who wanted higher returns from hedge fund investments should fire their overpaid fund managers and replicate the funds themselves using mechanical futures trading strategies. At that time his research suggested that the synthetic funds he and Helder Palaro designed would have outperformed real funds of hedge funds 82% of the time. Kat’s prediction then was that the alternative investment market would move rapidly away from active management over the following 10 years, and synthetic hedge funds would represent around 40% of the market by 2016.


It will be interesting to hear whether actual capital invested in hedge fund replication strategies have outperformed funds of hedge funds 82% of the time since 2006, and particularly in the last two years.


Please use the comment fields below to provide an answer and I will moderate an informed discussion.