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Hedge Fund Alpha: No Math Skills Required

" Hedge Fund Alpha: A Framework for Generating And Understanding Investment Performance ," combines a vague title with a highly ambitious subtitle. It came out at a rather awkward time in 2009, and I suspect many people interested in investment literature may have missed it. Written by John. M. Longo of the Rutgers Business School, who works in the finance and economics department, it approaches both the practical side of trying to generate underperformance and the difficult topic of trying to understand how hedge funds do it.

About the author

longo.jpg

Above: Longo presenting Warren Buffett with a gift from
Rutgers

Above: Longo presenting Warren Buffett with a gift from Rutgers

Longo is a professor of finance at Rutgers business school and received his Ph.D. and MBA in finance from Rutgers in 1995. In addition he is the chair of the investment committee and CIO at The MDE group (over $1.3 billion in AUM according to Wikipedia).

Before that, Longo was a vice president at Merrill Lynch where he set up and managed investment strategies for the M&L Strategy Power product.

Why you shouldn't read this book

If you are looking for stock tips, this is surely not for you. Even if you are looking for tips on how to set up a hedge fund, you will be disappointed. Though in case of the latter, there is quite a bit of valuable information. It isn't great as a vacation or weekend read either, because the chapters can stand alone. This is highly useful in an educational setting, but it doesn't always make for the best continuous reading. Having said that, I breezed through it in one evening and loved it from start to finish. I'll get into why in a second, but the book tackles difficult and big subjects in a straightforward and very simple manner. This means it sometimes lacks depth, but the author has made an intelligent trade-off. No math skills are required, which is something you can't say about every hedge fund book.

Who should buy this book

Anyone who is curious about the practical ways in which hedge funds are looking to generate returns and to learn more about the characteristics of good and bad investment strategies should read this book. The book is perhaps especially interesting to those who are looking to design strategies to run at a hedge fund, or decide which direction to expand.

For people trying to chose between the menu of various "alternative" strategies, this book is extremely helpful. Longe discusses the various commonly employed strategies and how managers go about creating alpha. He expects highly specialized funds to be the best bets. His treatment of funds investment should be read by anyone considering it.

In particular, I loved the chapter on the future of hedge funds and the seven emerging trends Longo identified.

Finally, the appendix alone is worth the price of this book. There are a ton of good resources, websites and tools you likely haven't bookmarked yet. Appendix 2 is a hedge fund manager reading list with 25 excellent

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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