Wednesday, 28 September 2011

Hedge Fund Credit & Risk

A couple of weeks back I joined in a presentation put on by PRMIA (The Professional Risk Managers International Association) at Imperial College, London. The sessions were on hedge funds and credit risk, and so I tapped into my experience as a risk manager in a single manager hedge fund and what I observed during the Credit Crunch of 2008/9 and explored the contrast in credit conditions for hedge funds between the period before and the period after the Credit Crunch. These are the slides I used:

Tuesday, 27 September 2011

Book Review for "The Inner Voice of Trading"

A successful trader or investor in financial markets succeeds through a combination of factors. There is the "what they know" part; there is the trading format the trader or investors uses; and there is the less well explored element in the mix - the "other" of the trader besides technical/factual knowledge. Michael Martin's new book "The Inner Voice of Trading" (FT Press) is an exposition on this last element.

Michael Martin has been a market professional on the sell-side, a trader of his own account in stocks and commodities, and someone who has been a trader trainer for a living. He has also interviewed great traders seeking insights into the ways of working that made them great (see his website This background makes him well equipped to explore what seems to be the hardest part of trading in which to excel.

Financial markets are full of smart people with MBAs, CFA qualifications, and, increasingly, PhD's.Quite sophisticated trading systems can be bought off the shelf for really very little outlay (hundreds of dollars rather than thousands). Logically there could be many more successful traders than there are. So there is an argument to be made that this last element of trading - the soft factors, and focusing on knowing yourself as an investor/trader - is one that is under explored and developed. This is the gap this book is seeking to fill.

Martin's progress through the psychology of successful trading is reinforced by evidence and quotations from prominent traders. This gives the thrust of the book credibility if not authority. In an era of the "me first" society his focus on development of the individual's own trading culture should find appeal, but though this is part self-help book, be aware that this not a step one-step two guide to to how to do it. The book has well-observed pointers but is not a manual for trading.

That written, Michael Martin's book will have resonance for those already operating in financial markets on the buy-side, and will be extremely helpful to the neophyte trader. This is a welcome addition to the oeuvre of investment books, and its' focus makes it a good companion text for those who like the "Market Wizards" series and their ilk.  

For other views of this title see the Amazon page for it.

Friday, 2 September 2011

UK Focused Hedge Funds to Benefit from More QE and More Devaluation

This short opinion piece from SVM's Colin McLean was so brief and on-the-money I thought I should share it. The third paragraph in particular is worth absorbing.

"The summer stockmarket sell-off caught most investors by surprise.  Expectations changed sharply as a good company reporting season in July gave way to a vacuum in US and EU political leadership in August. There are now mixed signals on the global economy, pointing to new risks.  But the crisis is throwing up new opportunities as well as dangers.

While some data is contradictory, evidence is mounting that global growth will disappoint.  Expectations are changing most rapidly in Europe, but in all regions scope for further effective stimulation is limited. Governments cannot re-run the unprecedented stimulation of 2009.

However, the UK can still do more than most to tackle the slowdown.  It has currency flexibility and an independent monetary policy, allowing it to move more rapidly than the US or Europe. Before the year end, another round of quantitative easing seems likely in the UK, and a further devaluation of the Pound by around 10% is possible.  This will immediately benefit Britain’s exporters and other global businesses listed in London. Stimulation would be a catalyst for money on the sidelines to buy shares. Hedge funds generally have had poor returns this year and will be eager for a rally. Portfolios need to be positioned ahead of this."

Net market exposures are currently low, and cash levels very high amongst hedge funds. There is a potential for a partial re-run of the equity rally provoked by the last round of Q.E., though markets never repeat exactly.