BILLIONS - Alpha: How Hedge Funds Find their Edge (Feat. Nicolas Rabener)

This BILLIONS analysis is about hedge fund ALPHA (α). One of the most important and elusive objectives in alternative investments.
Does Axe Capital Produce Alpha? What are the skills involved? And how does it compare to the real world? I'm teaming up with Nicolas Rabener from Finominal to answer!
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Finominal's channel ‪@Finominal‬
Alternative Investment concepts in this episode:
👉 Alpha of investments
👉 Beta of investments
👉 Alternative Beta
👉 Outperformance & Excess Returns
👉 Hedge Fund Manager's skills
ALPHA FORMULA
Alpha = R - Rf - beta (Rm-Rf)
R represents the portfolio return. Rf represents the risk-free rate of return. Beta represents the systematic risk of a portfolio. Rm represents the market return, per a benchmark.
In the next video, I will calculate the actual Alpha of the Axe Capital fund (digging the numbers)
TRANSCRIPT FROM NICOLAS RABENER
The information asymmetries have largely been arbitraged away.
And the reason for that is quite simply because if you think about public equities, it's very difficult for a fund manager at JP Morgan to have a competitive edge or someone at Goldman Sachs. There's they have the same data, a Bloomberg terminal. How they're supposed to create outperformance they have the same access to management and so on.
The basis of that is because data is becoming better and technology's become better. So nowadays it's quite simple. You can go to any data provider we more selves and find out does a certain portfolio or certain fund managers you have alpha, if you think back 20 years ago, it was a much more difficult exercise.
Versus today you have more than three million indices so we can dissect fundamentals.
Performance really finely and find out. Is there really something unexplained the fund managers doing? Was it simply something out of alternate beta space or some sort of market exposure that just wasn't measurable before?
And of course, going forward, I think, like from an industry perspective, this will become even tougher because data will continue to improve a technology we can improve. So I think the power posture is shifting from the fund managers to the allocators as the effect of being empowered by data technology.
ABOUT THE BILLIONS SERIES
Emmy® and Golden Globe® winners Paul Giamatti and Damian Lewis star in a complex drama about power politics in the world of New York high finance. Shrewd, savvy U.S. Attorney Chuck Rhoades (Giamatti) and the brilliant, ambitious hedge fund king Bobby "Axe" Axelrod (Lewis) are on an explosive collision course, with each using all of his considerable smarts, power and influence to outmanoeuvre the other. The stakes are in the billions in this timely, provocative series.
ABOUT THIS CHANNEL
FintechOrama is a channel that helps you discover and understand the world of fintech and modern finance
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#Billions #hedgefund #alpha

[@t.s.d.1376]

this is brilliant content man. love the breakdowns and analysis. You are making me wanna watch the show.

[@InvestOrama]

Thanks a lot and yes you should!

[@orpheusepiphanes2797]

I think that its still there but in smaller markets. You have to play at smaller tables. A lot of funds have systems that cant scale

[@InvestOrama]

Yes good point. I remember seeing something about India (although not exactly a small market) where a lot more fund manager outperformed the benchmark than in the US, Europe

[@newparadigm907]

Thanks for the video, I was looking for the Ben Kim clip for years, when I watched it it super peaked my interest in alternative data.

[@InvestOrama]

Glad you found us and liked it. There's also a video with Taylor and alternative data

[@Max-ve5tu]

There are three ways to make a living in this business: be first (HFT-trading), be smarter (informational advantage), or cheat (insider trading).

[@InvestOrama]

Remind me who said that please? I feel like it's in a movie

[@Max-ve5tu]

@@InvestOrama yep, it’s from Margin Call. The scene where Jeremy Irons’ character tells the board that they are going to unload the MBS products on their books.

[@InvestOrama]

Oh yes yes yes now I see it in my head thanks

[@prembutter]

"Probably not another Taylor Mason" lol

[@InvestOrama]

well spotted ;)

[@yashmishra3385]

Any materials to read or watch to become like a bad ass Hedge fund manager?

[@InvestOrama]

Caia is a good resource

[@cizzlen07]

One of the best shows ever!

[@InvestOrama]

Yes but I don't think they managed to maintain the quality in the latest seasons

[@FarEastAlpaca]

So are we getting ever closer to efficient market? If so, how would you find alpha?

[@InvestOrama]

Very good question. Nicolas's response is that it's harder to find and in fact can only be found in venture capital at 22:50 kzbin.info/www/bejne/qqC5lYBof8qKrpo

[@sedditguy1836]

Can you get a Maths Expert/Quant on to explain what Taylor had written on the Board at Mase Cap which Bobby spied on and was analysing on his jet.

[@InvestOrama]

Sounds exciting. What episode is that?

[@blankneverlosegaming6374]

@@InvestOrama Season 4, Episode 3

[@InvestOrama]

@@blankneverlosegaming6374 Done by the way - did you see it ? (without expert! Just google)

[@gerasimpalachorov2486]

Would love if you do a video on what taylor's equation means in s4? Is it real?

[@InvestOrama]

done and yes kzbin.info/www/bejne/nmKod5-omdJkr5I

[@kamohelothateng6079]

No matter how much mathematical data you have excess to, people are still the ones making the deals, acquisitions and mergers. And those deals are practically non existent until they are documented(captured), as data that can be extracted. Having the competitive advantage of knowing that a deal is on the way and being able to decipher the math of the outcome and make money from it... Is the hedge fund manager's , "kavlor of knowing the answer".

[@InvestOrama]

Kavlor?

[@kamohelothateng6079]

@@InvestOrama Damn, I edited that so many times... "Kevlar"

[@rockefeller13]

Keep em coming

[@InvestOrama]

Thank you my frd

[@moneyprinter9269]

Goddamn i love your content, one of a kind and actually superb!

[@InvestOrama]

🙏Keeeeeep Printing!

[@doge2themoon373]

nicely done

[@InvestOrama]

Something tells me that👆 profile knows about high returns

[@dhruvsapariya2142]

What tv series is this????

[@InvestOrama]

BILLIONS

[@karenandrews4224]

Playing devils advocate - then how a hedge fund operates in terms of efficiency and fees could be a secret alpha advantage - if you could undercut your competition while still generating decent returns...

[@InvestOrama]

Yes Karen! You are reading my mind again. Indeed digital transformation or transforming hedge funds into lean cloud based is the biggest trend

[@karenandrews4224]

@@InvestOrama you’re smart u should start a low cost fund of funds

[@aks9545]

Do we know the alpha of renaissance technologies?

[@InvestOrama]

Should be able to find out the alpha of their funds, although the medallion fund is private and that's the one that has a legendary performance

[@aks9545]

@@InvestOrama yeah

[@nikosxmalaspaok]

Man, you should definitely make videos about NFTs

[@InvestOrama]

Nice idea! But what episode of billions could I use?

[@ThatOneCanadianKid]

Geez I feel so honored to be this early

[@InvestOrama]

we are honored by your presence

[@BillionsAcademy]

Amazing

[@InvestOrama]

Thanks

[@starzs7704]

those videos are soo mindfucking like it looks as if the show was created for your Channel

[@InvestOrama]

I thought it was!

[@ankitanand2458]

Hey... where is dollar bill

[@InvestOrama]

I know, right? Ultimate alpha creator! He's actually in my original script but didn't make the cut

[@jonyisme931]

Crazy vid

[@InvestOrama]

Hm thank you?

[@HamptonCollabs]

so he is the dr. house of hedge funds

[@InvestOrama]

I'm not sure I see it

[@russellfernandez57]

Last time I was this early I made alpha

[@InvestOrama]

as long as it's not alternative beta!

[@rawcircoking]

Let me help you out... you always wanna be a pm, so a L/S portfolio, mainly, of course, it's all situational. High vix becomes a trader environment, but alpha is only important if your portfolio is a long only mandate. You wanna chase risk adjusted returns instead.

[@InvestOrama]

Instead? How do you improve risk adjusted return without alpha?

[@MixSonaProductions]

You gotta be Alpha to invest

[@InvestOrama]

Or you gotta invest to be alpha?

[@TheLambo123254]

coool

[@InvestOrama]

👍

[@axelrodclips9209]

Respect ME!!

[@InvestOrama]

Show me your alpha

[@likemysnopp]

Oh... so this is all for pushing a course on us. How foolish of me to think that someone on youtube would do videos because they actually enjoy doing videos and that was all it was..

[@InvestOrama]

Thank you for giving me the opportunity to clarify: 1) I enjoy doing videos but yes, I am looking for a way to monetize the hours I'm putting into this 2) The course was launched based on the feedback I received: people are asking for it 3) You can't teach everything on KZbin, for more details you need a different platform 4) The cost of the course will be minimal compared to the benefits people get from it (whether it's a career move or just intellectual curiosity) 5) It's not all for pushing a course, the videos can be enjoyed on their own.

[@likemysnopp]

@@InvestOrama yes, you can teach anything on youtube. Or people can simply send you an e-mail or message at a free platform. There is no excuse no matter how much you try to monitize more then thru the youtube ads. Especially in the finance part of youtube which is filled with con-men and course selling or "go to my patreon" bullshit. I would say that this video also proves how nobody has any advantage today really. Plenty of other videos (made by people in finance with cfo, mba etc) which breaks down heavily why nobody will beat the sp500 over a long period of time. If you want to make money, then go and work for something that makes a lot of money. And if you are so skilled at the market that you seriously think you can teach this thru a course.. then why dont you trade yourself to millions of dollars instead? I can go on and on about why course selling in this area is retarded and should not even be allowed imo.

[@InvestOrama]

@@likemysnopp I AM NOT SELLING A TRADING COURSE. Sorry for shouting but this is absolutely not my course - it's not about making money it's about understanding. And I invest mainly in the S&P500 (and other broad-based indices) and recommend people do so.

[@likemysnopp]

@@InvestOrama then why not just do longer videos and explain what ever you want to share with everyone? Its not that hard to do. I would know, since ive been here from 2007. Seen a lot of things over the years and I will never, ever, accept courses being sold. Especially since you make money from ads and the finance ads pay like 3 times what other ads pay. And if you cant put ads on your videos, then you simply wont make money from youtube. Why is this so hard for people to understand.

[@InvestOrama]

@@likemysnopp Yes another great question. 1) segmentation: most of my viewers prefer short videos and are not into a course. 200 people have signed up to the course vs 8500 subs. 2) A course is a very different experience. You can find everything on the web but a course provides, structure, support, quizzes. I actually think KZbin and courses are complementary. Learn a little: go on YT. Learn a lot. Take a course.