"Hedge Funds" Posts
Roaring Kitty is a Wall Street lion

Roaring Kitty is a Wall Street lion

‘Roaring Kitty’, the rebel redittor behind GameStop, is actually a registered principal. His actions and background will harm him, his employer, and will change the industry.

This post explains Keith Gill’s actions, his investment and his supervisory background, and the responsibility of his employer, as they are stated in the class action lawsuit. We ask questions and ponder the long-term consequences.

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Are the Robinhood traders going after the VIX?

Are the Robinhood traders going after the VIX?

‘When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett

Three good notes from the derivatives research teams of Morgan Stanley, Société Générale, and Nomura point to a potential squeeze in the VIX, as a result of the increasing retail activism. This technical post explains the contents of the research papers. Spoiler alert, yes, the VIX is prone to a squeeze.

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The revenge of the retail trader

The revenge of the retail trader

GameStop’s rally and its short squeeze are more than just market exuberance. Thanks to low-cost trading, employees working from home, and a Fed-induced market rally, retail traders are pushing the market to new highs and enjoying the excitement of the rally. Worse, social media allow them to focus on a few instruments, with wild rallies.
It is only a matter of time before this party is over, for this stock or the market. We should start thinking of the aftermath.

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Betterment and Wealthfront on the brink of major changes

Betterment and Wealthfront on the brink of major changes

If you are not in the RIA space, you may have missed a profound change in the area. Robo-advisors are taking a solid market share, and their AUMs are now in the multi-billions. The big boys (Fidelity, Vanguard…), were actually forced to create their own such services not to be left out of this new segment.

Robo-advisors are not really growing at the expense of the usual wealth managers (which still better grasp complex situations), but are concentrating on the under-served low AUM investors. Robos charge a fraction of the existing management fees, thanks to artificial intelligence. They only offer the human touch past a certain $ nominal, therefore bringing the number of advisors per client really low. In fact, Robos also help the usual RIAs with the practical aspects of asset management (cash handling, rebalancing…).

Two leaders, Betterment and Wealthfront, are preparing for the next step of their growth. This article gives an idea of how the senior changes should impact their future.

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Portfolio managers shouldn’t keep the best trades for themselves

Portfolio managers shouldn’t keep the best trades for themselves

Nope, portfolio managers shouldn’t keep the best trades for themselves (at the expense of other investors).
BlueCrest moved its best traders into a management-owned fund, and used AI to replicate their trades in the main fund. Unfortunately, the replication was poor, and investors redeemed and sued when the intel of the new approach came out.

The SEC is now forcing BlueCrest to compensate investors $130m for the underperformance, with a $37m penalty on top.

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A terrible, horrible, no-good year for quants

A terrible, horrible, no-good year for quants

Quant hedge funds have had a bad year. One of their core factor, value, a staple of investment for many years, has strongly underperformed.

Quants rely on backtests to see what has performed / is performing well. In a changing universe, models naturally have short lifetimes as a result. In this covid world, the past really doesn’t reflect the future anymore, and many models do not work at all. Some quants have self-doubt on the validity of their approach (see the previous post on Inigo Fraser Jenkins).

It’s probably way too early to call for the demise of quant investing, but COVID surely brings a regime shift.

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Previous Posts

Four-barrel gun

Archegos: the questions nobody asks

What happened at Archegos? A lot has been published already, but many critical questions have still not been asked. After a factual summary / press review, this article asks the missing critical questions.

Rogue, the new numps

“I’m going rogue”, claims the principal

Guy Gentile is a principal with a checkered past: pump-and-dump, lack of registration, soliciting US customers from the Bahamas… He’s not hiding that he went rogue.
He just got sued by the SEC for evading US stock trading regulations. Again.

Cannabis and Wall Street

Cannabis: Wild West meets Wall Street

The cannabis industry is growing up, getting sophisticated. Perceptions are changing, but regulations are inconsistent. The smart money has arrived.
Here are the regulatory, financial, and investment challenges, as well as the opportunities, driving this rapidly evolving market.

Fishing Fly

The Tesla and Bitcoin lures

Two articles coincide into a disappointing conclusion. The casino markets will lure a chunk of the stimulus money into bad investments.

Payday loans

Buy Now Pay Later, the new payday loans

Buy Now Pay Later (BNPL) is the new form of credit used by 1 in 3 US consumers, and growing at 40% per year. It’s the new payday loan business.

This report explains what BNPL is, who uses it, how much it grows, and what this business really is about. The review asks questions to ponder about this new funding business.

Unicorn meat v2

SPAC, off-the-shelf dream?

The blank check companies are raising billions in IPOs… but for how long? Here is the SPAC 101 manual: nature, popularity, ego crisis… and even options!

Compass

The SEC’s new priorities: climate, seniors, cryptos & fintechs

The SEC has released its new sets of priorities for 2021. Here they are. Climate & ESG risks, disclosures and policies will be the focus #1. Retail investors, seniors, retirement savors: Reg BI and Fiduciary Duty compliance Information Security & Operational...
Hammock over the emptiness

4.25% repo on 10Y and other volatility warnings

This week saw some really unusual moves, 10Y repo, intraday volatility, stock rotations, A harbinger of more volatility to come?

Old calendar

T+1 ?

Should US stocks settle T+1? The current T+2 settlement date is considered antiquated, and the Robinhood affair (gee, them again???) has relaunched the debate. Here is a review of the DTCC’s proposal, as well as an idea for derivatives traders.

classe dissipee

Adult supervision needed in the crypto trading rooms

The SEC and the NY AG are suing CoinSeed for lack of registrations and multiple other counts. That’s a cold shower for the crypto industry. Spoiler alert: adult supervision is needed.

Psychic crystal ball

Geode hedge fund, loses big on volatility bets during COVID

Geode handles $700 bn of Fidelity’s index tracking assets. Geode Diversified, the much smaller hedge fund business, took a 36% loss on COVID’s volatility rally. It is now getting the axe.

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