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WSJ – Citadel Investment Group LLC earned about $1 billion last year from a unit involved in high frequency trading, the Wall Street Journal said, citing the testimony of a former employee of the hedge fund firm.
According to the Journal, Mikhail Malyshev, a former Citadel trader and accused by the firm of violating non-competitive agreements, testified in a Chicago court that the unit also posted returns of $892 million in 2007, up from $75 million in 2005, and about $3 million in 2004.
New York Magazine – Only a few loyal readers paid attention to the blog called Zero Hedge, a no-frills site full of arcane analysis decipherable only by finance professionals. But when a former Goldman Sachs computer programmer was arrested for allegedly stealing software codes used for the firm’s electronic trading arm, and a federal prosecutor was quoted saying the codes could be used to “manipulate markets in unfair ways,” the once-obscure blog ignited a chain reaction.
While on a golf outing, an editor at the New York Times learned from a friend who worked on Wall Street that the Zero Hedge allegation was the talk of the industry, and an assignment ensued. On July 24, the Times published a front-page article on so-called high-frequency trading and its potential abuses, which in turn prompted Chuck Schumer, a member of the Senate Finance Committee, to draft a letter to the SEC that same day. Twelve days later, the SEC signaled that it was considering a ban on the very computerized trading that Zero Hedge had attacked.
New York (HedgeCo.Net) – Credit Suisse’s Quantitative Equities Group released a new whitepaper, “Equity Market Neutral: Diversifier Across Market Cycles,” outlining the potential benefits of an Equity Market Neutral strategy. The paper details the various types of Equity Market Neutral funds as well as the traits which have historically helped the best managers stand out.
Equity Market Neutral (EMN) funds have been generally successful in profiting from a variety of environments and have provided an effective counterbalance in diversified portfolios during periods of market volatility, such as following the Lehman Brothers bankruptcy in September 2008. The findings of the paper suggest that:
EMN is a potential diversifier given the low beta it showed to the 2008 equity markets in what was a historically volatile year
EMN has lower annualized volatility than other hedge fund strategies over the long term and has provided generally positive risk-adjusted returns over the last ten years
After the significant market dislocation experienced by quantitatively managed funds in August 2007, many managers increased the range of data used, including building proprietary data and risk models, in an effort to try to mitigate the effects of a future mass deleveraging event
In order to achieve diversification within the strategy, investors should seek managers who work with a range of uncorrelated factors and proprietary models in order to avoid crowded trades. This diversification of factors and models was a key element in the strategy’s ability to weather market volatility in 2008 and will likely remain the cornerstone of alpha generation for the strategy going forward in the near term
EMN managers see the post-Lehman landscape as opportunity-rich for the strategy because there is less capital being deployed as well as less competition in program and high-frequency trading.
Editing by Alex Akesson
For HedgeCo.net alex@hedgeco.net HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
The Washington Post – The Wall Street herd is at it again. Even as the cleanup crew is carting away the debris left by the last financial crisis, the investment banks, hedge funds and exchanges are busy working on the next one.
Forget collateralized-debt obligations and credit default swaps — the new new thing is high-frequency trading. In the last three years, this practice has boosted trading on the country’s stock exchanges by more than 150 percent, to the point where it now accounts for two-thirds of the daily trading volume.
New York (HedgeCo.Net) – Misha Malyshev, a trader for Citadel Investment Group who headed two of the firm’s hedge funds, has resigned according to a report by Bloomberg News.
Malyshev seemingly had a successful run with Citadel, working for the firm for 6 years and helping the two hedge funds post returns of about 40 percent last year. The hedge funds are estimated to manage about $2 billion in capital.
Malyshev used “high-frequency” trading, which is a computer-dependent strategy that aims to exploit hidden behavior trends in the market, to run the funds. As opposed to real-time data analysis, high-frequency trading uses tick data to uncover information and trends that may be invisible to the average analyst. Complex algorithms and PhD’s are usually standard with this method of trading.
According to the report, Malyshev will take some time off and is unlikely to start working for another fund within the next 18 months, because of contractual obligations.
Citadel, which is run by Kenneth Griffin, seems to be on the up and up this year after a disappointing 2008. Griffin has informed investors that they will be able to make withdrawals from the firm’s biggest funds, Kensington and Wellington. The two funds were frozen last year after losing over half of their value.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Reuters - Citadel Investment Group LLC trader Misha Malyshev, who helped two of the firm’s hedge funds gain about 40 percent last year, has resigned, Bloomberg News said on Thursday, citing a person familiar with the firm.
Malyshev was head of "high-frequency" trading, a computer-dependent strategy used by two of the firm’s hedge funds, and left this week with two members of his team, the report said, citing the person.
Malyshev is unlikely to start or work with another fund in the next 18 months because of contractual restrictions, the report said, citing the person.
Seeking Alpha – Risk management Rule No.1: if it can happen then it will happen. Hope for the best but plan for the worst. Recent events have provided good returns for some hedge funds, hard times for other hedge funds but harsher times for long only. Skilled absolute return managers don’t make money every month but they do have milder and shorter duration drawdowns than index funds.
I wrote back in January that the Dow and Nikkei would likely fall below 10,000 this year as a result of the credit crisis and owning stock index option puts has indeed been the top performing strategy this year. But those were just lucky guesses. I can’t time markets so personally I’ll be focusing on funds that can preserve capital, control drawdowns and generate alpha no matter what happens.
Flight to quality? Some real hedge funds are positive for the year even when the aggregate returns for the industry are negative. Performance dispersion is enormous in such a diverse universe. Several strategies have not been affected by prime brokers imploding, changes in short selling rules or the leverage lockdown. The best managed futures CTAs, global macro and options traders have been generating absolute returns throughout the equity and credit mayhem. Strategy diversification is so important since forecasting is difficult. Transitions from one market regime to another often requires a financial revolution. Read Complete Article
