How Hedge Funds Make Money - The Long and Short of It
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Date: 10-09-2006
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Richard Bookstaber, FrontPoint Quantitative Fund
Location: 412 Schapiro CEPSR, Davis Auditorium
Abstract
Two Questions that never seem to get a good answer are:
1.
What exactly is a hedge fund?
2. How do hedge funds make money?
I believe the first one does not get a good answer because it can't. In my view "hedge funds" is not a useful category. Which means the second cannot be answered as stated, since if hedge funds can't be well defined, you can't analyze them.
But if we are willing to pick a subset of hedge funds that can be defined as a useful category, we can get some place. After some preamble about points 1 and 2 above, I will discuss long/short equity hedge funds, and reasons I believe, the notion of efficient markets not withstanding, they can make money. (Although how much they will make going forward remains an open question).
Bio
Dr. Richard Bookstaber is the principal of the FrontPoint Quantitative Fund, a quantitatively-driven long-short equity hedge fund. He also is the principle of Scriber Reports, a skill assessment vehicle equity hedge funds.
Dr. Bookstaber came to Wall Street in 1984 after receiving a Ph.D. from MIT and settling in for a while in the academic world. His move into the financial industry started Morgan Stanley, where he worked in Fixed Income Research and then ran a proprietary trading book. In 1993 he took on the role of Morgan Stanley's first market risk manager. He left Morgan Stanley the following year to be in charge of firm-wide risk at Salomon Brothers, and left in 1998 after the Citigroup merger to move to the hedge fund world.
His first buy-side role as the risk manager at Moore Capital Management. He then moved to Ziff Brothers Investments, where he also was in charge of risk management. He later ran a quantitative long-short equity portfolio at Ziff Brothers, leaving to start the FrontPoint Quantitative Fund, which he runs with his two oldest sons.
Dr. Bookstaber is the author of three books and numerous papers in the area ofoptions and derivatives and in risk management.