Assessing the "intangible" component behind the performance of a fund manager : a focus on the "Liquid Alternative" market

The area of research of my study are the Liquid Alternative funds. These funds can be considered as a subset of the broader market of Investment funds. This research project studies the relation between the performance of “Liquid Alternative funds” with their “intangible” and qualitative elements. Some examples may include: the length of the track record of the manager (years of experience, etc.), the quality of the management team (number of investment professionals, etc.), the evolution of their assets under management (stability, size and concentration of the target investors), the risk management framework (independence, effective veto power, limitations to the management of the investment book), the level of transparency provided to investors (quality and granularity of the information provided) and their operational due diligence framework (management of the operational risk and quality of the counterparties used). The final goal is to deliver a screening and research methodology that could allow fund investors (fund of funds, institutional investors, private bankers, high net worth individuals, endowments, foundations etc.) to identify potential new investment ideas not only through a quantitative screening but also with a qualitative filter that uses a standardized valuation methodology. The main aim of the research is be the starting point to develop, over the long term, with the techniques used a different research framework for fund selection that will encompass both a qualitative and a quantitative methodology within a unique model. The area of investigation is restricted to “Liquid Alternative Funds” because these funds have no benchmark and the fund manager’s main objective is to maximize the alpha. As a consequence, the importance of the “intangible” component is very high. This particular area is also quite new in the asset management industry , as it started to grow as a response to the 2008 financial crisis, offering to investors a way to access to this market with more liquid strategies and less stringent entry barriers. For this reason the research gap that could be filled is particularly wide, due to the lack of research that, on the other hand, is quite developed on other alternative assets (e.g. hedge funds and private equity). The research framework developed could, then, find a potential area of further development on the traditional long only funds, in order to review possible differences with the alternative funds. The work is divided into two main areas of research and analysis. The first part is focused on the analysis of the investment process of liquid alternative managers. The main tool used to achieve the research objectives is a survey made by the liquid alternative fund managers on the qualitative aspects of their investment strategy. The results of the survey, that represent a self-evaluation of the investment process of the different funds that are, then, analyzed and compared with some risk/return ratios (ex: Sharpe Ratio). The final goal is to identify a relation between risk/return and the different features of each investment process, in order to develop a screening/fund selection methodology that can be able to identify the most efficient investment process for a liquid alternative fund. The second part studies the relation between the asset flows of funds and their relative performance, in order to identify possible relations between investor approach on funds (measured by means of periodic analysis on subscriptions/redemptions) and their effective risk/returns. The aim of this study is to find out if investors, with their choices (subscribe/redeem) may influence the ability of a fund manager to generate a positive risk/return profile for his portfolio and if investors are effectively good or bad to time their investments in the funds. A model that links asset flows with risk/return may also serve as a way to correctly time the entry/exit strategy on a fund and it could become a useful tactical asset allocation tool.

Il lavoro si focalizza sul mercato dei fondi Alternativi Liquidi , nello specifico quelli regolamentati dalla direttiva Europea UCITS. Lo studio è incentrato sulla relazione tra le componenti qualitative/intangibili di un processo di investimento (es. struttura e qualità del team di gestione, processi di costruzione del portafoglio, risk management ecc...) e la componente rischio/rendimento associata a quel processo. L'obiettivo finale è quello di sviluppare una metodologia di studio, analisi e selezione dei fondi alternativi liquidi che consideri in modo strutturato anche le componenti qualitative. L'area di ricerca è limitata ai fondi Liquid Alternative che, non utilizzando un benchmark di rifermento per la gestione, tendono a minimizzare la componente di mercato nelle loro performance. Lo strumento principale di misurazione delle variabili qualitative utilizzato è quella della survey presso il mercato dei gestori liquid alternative.