Prerequisite of the standard norm distribution of Markowitz at hedge fund not realistic

2. Oktober 20082. Oktober 2008 Educational Centre of TU in Herľany,Educational Centre of TU in Herľany,Slovak Republic Slovak Republic

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Prerequisite Prerequisite of theof the

standard norm standard norm distribution distribution

of of

Markowitz Markowitz atat

hedge fund hedge fund

not realisticnot realisticVolker GRONAUVolker GRONAU


22


33


44


55

CPPI - InvestmentCPPI - Investment


66

MACD - InvestmentMACD - Investment


77

Value - InvestmentValue - Investment


88

Growth - InvestmentGrowth - Investment


99

Markowitz Maximum Sharpe RatioMarkowitz Maximum Sharpe Ratio


1010

Markowitz Minimum VarianzMarkowitz Minimum Varianz

DAX


1111

DAXDAX

REXREX = loan investment

Real Estate Real Estate InvestmentInvestment


1212

aktuelle Rendite %

4,54 4,52 4,54 4,574,62 4,66

4,91

4,63

4,51 4,50

3,00

3,50

4,00

4,50

5,00

5,50

6,00

1 2 3 4 5 6 7 8 9 10

YIELD - StructureYIELD - Structure

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Alternative InvestmentsAlternative Investments

►Relative ValueRelative Value

►Directional StrategiesDirectional Strategies


1414

Hedge Funds Hedge Funds

Managed Futures Managed Futures

as well asas well as

Private Equity Private Equity

andand

Venture CapitalVenture Capital


1515

Harry Max MARKOWITZHarry Max MARKOWITZ

Merton MillerMerton Miller

Exkurs

Nobelpreis 1990

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Definition and features of hedge fundsDefinition and features of hedge funds

There is not a uniform definition There is not a uniform definition for the concept for the concept "hedge funds""hedge funds"

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Definition and features of hedge fundsDefinition and features of hedge funds

Hedge funds represent a very Hedge funds represent a very heterogeneous investment group in the heterogeneous investment group in the

financial economyfinancial economy

There is not a uniform definition for the There is not a uniform definition for the concept "hedge funds"concept "hedge funds"

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The expression "hedge" usually describesThe expression "hedge" usually describes

the protection against a financial assetthe protection against a financial asset

against change of price risks, against change of price risks, like share price, like share price,

interest or interest or exchange rate fluctuations,exchange rate fluctuations,

at the capital markets.at the capital markets.

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"Hedge funds" "Hedge funds"

have established himself have established himself as generally recognized as generally recognized

and primary conceptuality, and primary conceptuality, however, worldwide.however, worldwide.

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Literature definitionLiterature definition

• low liquiditylow liquidity• more complexlymore complexly • short sellings short sellings • investments into derivatives investments into derivatives • to obtain an essential leverageto obtain an essential leverage

furthermorefurthermore

• Hedge Fund investments are not accessible Hedge Fund investments are not accessible for all investorsfor all investors

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The unusual feature The unusual feature of alternative investments of alternative investments

arises arises

from the view from the view that capital markets assets that capital markets assets frequently inefficiently and frequently inefficiently and

therefore are not able correctly to judgetherefore are not able correctly to judge

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Overview Overview of the management strategiesof the management strategies

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Definition of the risk conceptDefinition of the risk concept

a deviation by the concept riska deviation by the concept risk

of expected of expected

or planned returns or planned returns

in the investment areain the investment area

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ALPHA ALPHA – higher Performance – higher Performance expectationexpectation

DAX

DIV-DAX

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Problem definition at the risk-/ performance

measuring

The judgement of hedge fund strategies is carried out with certain return and

risk key financial data

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Bayer correlates with 0.13% with the Bayer correlates with 0.13% with the DAXDAX

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A diversification effect A diversification effect adapts provided adapts provided

that the investment alternatives that the investment alternatives not perfect and not perfect and

with that the portfolio risk correlates with that the portfolio risk correlates at same return expectation at same return expectation

is loweredis lowered

29

Log – norm distributionLog – norm distribution

If one analyses hedge fund strategies If one analyses hedge fund strategies a little more exactly, a little more exactly,

then the acceptance of the normal distribution then the acceptance of the normal distribution must be rejected in most casesmust be rejected in most cases

30

Log – Norm - Log – Norm - DistributionDistribution

Fat - TailFat - Tail

Fat - Tail

31

Sharpe-RatioSharpe-Ratio William F. William F. SharpeSharpe

red = Sharpe red = Sharpe investmentinvestment

DAXDAX

Div-Div-DAXDAX

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"The use leads the Sharpe reason "The use leads the Sharpe reason to extraordinary results, to extraordinary results,

however, however, which is owed to only the fact in truth which is owed to only the fact in truth that in connection with hedge funds that in connection with hedge funds

all risks are not included all risks are not included with the volatility. with the volatility.

Said differently the overall risk Said differently the overall risk is underestimated and is underestimated and

the return risk relationship the return risk relationship consequently overestimated." consequently overestimated."

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Sortino ratioSortino ratio

the surplus return, at which onlythe surplus return, at which onlythe negative performance changes the negative performance changes

(Downside deviation) (Downside deviation) are divided byare divided by

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On the right On the right

steepnesssteepness On the left On the left crookednesscrookedness

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Discount - CertificationDiscount - Certification

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Carl Friedrich Carl Friedrich GAUSSGAUSS

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"Pre investment analysis "Pre investment analysis

always should of one and always should of one and

a hedge fund investment a hedge fund investment

of a post investment risk management of a post investment risk management

is accompanied”is accompanied”

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I thank you I thank you

for your attention for your attention

very muchvery much

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Harry M. Markowitz (* 24.8.1927 in Chicago, Illinois) US-amerikanischer Ökonom

Merton Miller (* 16.5.1923 in Boston, Massachusetts; † 3. 6.2000 in Chicago) US-amerikanischer Ökonom

William F. Sharpe (* 16.6.1934 in Cambridge, Massachusetts, USA) US-amerikanischer Wirtschaftswissenschaftler

Nobelpreisträger 1990Nobelpreisträger 1990

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Prerequisite of the standard norm distribution of Markowitz at hedge fund not realistic

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