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The Actuary The magazine of the Institute & Faculty of Actuaries

Scottish Financial Risk Academy Colloquium tackles absolute returns and hedge funds

The second Colloquium of the Scottish Financial Risk Academy took place on 17 March at the Infomatics Forum of Edinburgh University. Following the success of the inaugural colloquium on lessons from the banking crisis (see The Actuary, November 2010) the subject was absolute returns and hedge funds.

In the first session professor Eric Zivot, from the University of Washington, discussed risk management for funds-of-hedge-funds using a factor model. One of the problems was getting a reliable history of data to use for the model.

Subhra Tripathy, of Aberdeen Asset presented customising hedge fund exposure for institutional portfolios. He highlighted that institutions have been the largest new investors in hedge funds in recent years whereas originally high-net-worth individuals had dominated.

The final technical session was on algorithmic trading and flash crashes, by Professor Philip Treleaven of the UK Centre for Financial Computing. He described the processes around algorithmic trading and focused on the flash crash on 6 May 2010 when some $600bn of value was lost and largely recovered over a 30-minute period.

The keynote address was given by professor Bill Fung, London Business School. He placed doubt on the validity of some previous research by noting that nearly 60- of hedge fund assets (though only 5- of firms) were excluded from the major hedge fund performance databases and made some interesting observations on correlation with other asset classes and on hedge fund consolidation.

A Q&A session followed with professor Fung joined on the panel by Subhra Tripathy, and Paul Hughes of Martin Currie Investment Management. Questions ranged from the degree of systemic risk caused by hedge funds to the value for fees charged and the future of the industry.

The third colloquium is planned to have a Solvency II theme and will take place in September. Further details on this and all sessions at www.sfra.ac.uk