The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Performance: Blow-ups can be predicted

Hindsight is a wonderful thing. But according to analysis by Riskdata, investors would have been able to predict funds that would lose money back in June last year had they used the right models.

Olivier Le Marois, Riskdata

"It sounds counter intuitive but there are good risk takers and bad risk takers"
Olivier Le Marois, Riskdata

The study looked at the performance from July 2007 to March 2008 of 3,200 hedge funds and funds of hedge funds that had a track record since December 2004.

Investors typically select a fund based on previous returns. This means avoiding funds that have had abnormal return distributions and large drawdowns. Although this method eliminates extreme risk takers from a portfolio, it fails to detect "time bombs with hidden risk" says Riskdata’s chief executive, Olivier Le Marois. Indeed, selecting funds based on this method would have resulted in returns of just 0.4% for the July to March period.

Funds that experienced high drawdowns in their lifetime before the credit crunch and market turmoil that began last July actually performed better in the testing market.

"Staying away from managers that have had monthly drawdowns in the past results in forming a concentrated portfolio of funds with quiet returns and a good track record," says Le Marois.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree