The Shape of Fraud
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Date: 04-24-2006
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Adil Abdulali, Protégé Partners
Location: 614 Schermerhorn
ABSTRACT
Many hedge funds invest in illiquid, hard to price securities that offer opportunities for high returns. However, the lack of price transparency makes measuring objective performance of investments in illiquid instruments quite difficult. To calculate monthly returns, managers employ pricing schemes based on the last available traded price, the average of prices received from dealers, or their own best estimate. The consequences of such practices include stale prices, managed prices, and false measures of volatility. A pricing policy applied subjectively can allow the return distribution of a fund to take the shape desired by the manager, rather than one dictated by an unbiased market. The Bias Ratio provides a measure of human “bias” used in return calculations. A simple return-based formula exists for the Bias Ratio, which gives a concrete measure of valuation bias for illiquid hedge fund assets.
BIO
Mr. Abdulali is the Director of Risk Management at Protégé
Partners, a fund of funds that invests in small, new, emerging or niche hedge
funds. Prior to that, he managed a mortgaged-backed securities hedge fund and
served as a Senior Advisor at Capital Market Risk Advisors. Before joining the
“buy side”, Mr. Abdulali spent 10 years as a derivatives trader at various “sell
side” firms trading and structuring Asset-Backed and Mortgage-Backed
Derivatives. Mr. Abdulali received an M.A. in Mathematics from Massachusetts
Institute of Technology in 1990 and a B.A. in Mathematics from University of
Pennsylvania in 1986.