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Money Mangers Marketing
- Thread starter LongView
- Start date
I must agree that it is refreshing to come upon a civilised and interesting thread on this forum. In general terms there seems to be a great deal of nonsense talked on elitetrader and little of genuine interest. In general who are these "proprietory traders"? Are they people working at the arcades and such like? Scalpers, day traders and so forth? Whoever they are they seem to be long on uniformative talk and short on ideas of value.
Max DD is single datapoint that will haunt you ad infinitum. I know managers who had a nasty DD when they were starting out and are still trying to explain it away to allocators 10+ years later. Bill Dunn is a great case in point - he had a DD of 50% when he was starting out (mid-70's) and his TPM still gets questions about it today.
You can alter your returns and volatility over time but you can never improve your max DD.
You can alter your returns and volatility over time but you can never improve your max DD.
Quote from bolter:
Max DD is single datapoint that will haunt you ad infinitum. I know managers who had a nasty DD when they were starting out and are still trying to explain it away to allocators 10+ years later. Bill Dunn is a great case in point - he had a DD of 50% when he was starting out (mid-70's) and his TPM still gets questions about it today.
You can alter your returns and volatility over time but you can never improve your max DD.
The drawdown issue is an interesting one.
How do you explain it away to potential investors?
How do you repeat it from reoccuring at such high levels?
How do you ensure that when you do generat good positive performance that you STILL get noticed, especially in this era where with all the online databases and search tools a potential investor can easily do a search that eliminates Funds/managers with DD greater than x%, thus eliminating you from their universe, in effect the fund management equivalent of death row?
Quote from CPTrader:
How do you ensure that when you do generat good positive performance that you STILL get noticed, especially in this era where with all the online databases and search tools a potential investor can easily do a search that eliminates Funds/managers with DD greater than x%, thus eliminating you from their universe, in effect the fund management equivalent of death row?
I see a surprising number of funds and managers who just reinvent themselves every few years. Some of these guys with "new funds with great records" have been NFA members for a very long time. Fortunately, the BASIC system run by the NFA makes it easy to track previous affiliations. Disclosure docs also require one to disclose past funds, etc... but I really wonder if some of these guys are doing so.
I think you can equate a drawdown to a negative mark on a credit report. There is really no way to eliminate the event, however the significance of the drawdown diminishes over time. One example of a fund that has had some breathtaking drawdowns, then thrived - is LJM. They had a 46% down MONTH in 2002, yet have no significant down months since and have been growing AUM nicely. Someone writing them off would have missed a few great years. Are they risky? Did they learn from the drawdown? Are they going to blow up? It's an interesting exercise to assess a fund like this given some of the discussion we've had about drawdowns and perceived risk.
thats because its actually quite a valuable selling point, being able to survive and come back from a 50% DD and tell investors about lessons learned etc... if it weren't there is nothing thats stopping Dunn from stating his performance from the day after that particular drawdown... full disclosure is one thing, anal disclosure another thing...Quote from bolter:
Max DD is single datapoint that will haunt you ad infinitum. I know managers who had a nasty DD when they were starting out and are still trying to explain it away to allocators 10+ years later. Bill Dunn is a great case in point - he had a DD of 50% when he was starting out (mid-70's) and his TPM still gets questions about it today.
You can alter your returns and volatility over time but you can never improve your max DD.
Drawdowns are the bain of every CTA's life....they make you or they break you in my opinion.
Its all well and good making 70% per year but if you are liable to drop 50% no institution and very few hnw's will dig much deeper than the headline numbers seen on most ranking sites.
I've had 2 of note that are still the only initial talking points of any interested party.....
In 2004 I had a 17.9% drawdown in 1 mth....managed to make 47% net that year but ultimately my risk parameters were a little lose and it hurt....since then I had a -9% in Jan'05, that was due to being slightly over leveraged....thus after adjusting our risk component and deleveraging slightly...I've had a 20% net last 12 mths with a max monthly drawdown of 2.53%.....not setting the world on fire but I've come to believe that slow and steady wins the race...especially with institutions.
Peace & profit
Its all well and good making 70% per year but if you are liable to drop 50% no institution and very few hnw's will dig much deeper than the headline numbers seen on most ranking sites.
I've had 2 of note that are still the only initial talking points of any interested party.....
In 2004 I had a 17.9% drawdown in 1 mth....managed to make 47% net that year but ultimately my risk parameters were a little lose and it hurt....since then I had a -9% in Jan'05, that was due to being slightly over leveraged....thus after adjusting our risk component and deleveraging slightly...I've had a 20% net last 12 mths with a max monthly drawdown of 2.53%.....not setting the world on fire but I've come to believe that slow and steady wins the race...especially with institutions.
Peace & profit
Quote from fitrol:
Drawdowns are the bain of every CTA's life....they make you or they break you in my opinion.
Its all well and good making 70% per year but if you are liable to drop 50% no institution and very few hnw's will dig much deeper than the headline numbers seen on most ranking sites.
Indeed.
The higher the dd, the more a manager must return to justify that risk.
That seems to be the quintessential rule when managing - erring on the side of caution (smaller returns. smaller dd).
In order to hit that 10 mil mark in reasonable time, a fund seemingly must return:
1) above avg annual returns
2) no annual drawdown
Pressure to perform is certainly placed on the startups - like all business.
Thanks for answering my questions everyone.
Quote from fitrol:
.I've had a 20% net last 12 mths with a max monthly drawdown of 2.53%.....not setting the world on fire but I've come to believe that slow and steady wins the race...especially with institutions.
Peace & profit
Agreed. I`ve heard several time from institutional reviewers that high returns are not necessarily their major concern, but possible loses.
Some said that ideal product was - small gains, as close "Month-to-Month" as possible.