Hedge Fund Awards 2014

Former L/S equity hedge fund analyst, Cameron Hight, con- fronted this reality head on after seeing his fund make avoidable mistakes due to an emotional, non-systematic approach to posi- tion sizing. He knew that most critical decision makers, inde- pendent of their field of expertise - physicists, actuaries, odds makers, poker players, etc. - employ a strict, non-emotional, re- peatable process fuelled by the best information available at any moment. Hight recounted, “Logically, it was clear that investors could benefit from the same emotion-free process.” so he built a crude system at his fund, then left to launch Alpha Theory™ and focus all of his efforts on decision process optimization for fundamental managers. According to Hight, “Emotion is the bane of efficient decision making. Position sizing requires an explicit, systematic, and re- peatable process that incorporates the risk-reward of each posi- tion (as calculated by the firm’s analysts) and the constraints the portfolio manager considers critical. Only then can you calculate the position size the ‘unemotional you’ would take and compare it to your current position size”. Alpha Theory™ is patent-pending decision analysis tool that le- verages a firms’ fundamental research and its unique portfolio construction and management preferences to drive a systematic and repeatable process for measuring idea quality and optimiz- ing position sizes to improve portfolio performance. Alpha Theory™ quantifies and isolates the firm’s best ideas by distilling the analyst’s fundamental research into four compo- nents: the profit if the thesis is correct, the downside risk if the thesis is incorrect and both the probability (conviction) and time horizon for each scenario. It then calculates a risk-adjusted re- turn for each asset and optimizes the position sizes to maximize the risk-adjusted return of the entire portfolio within the user- defined portfolio-level constraints. With Alpha Theory™, fundamental data for active portfolio as- sets and ideas is aggregated across the entire firm because each analyst updates information through their own tailored interface. As a result, the data critical to making investment decisions is always readily available and up-to-date. The cloud-based software is designed for fundamentally orient- ed money managers (hedge funds, mutual funds, RIAs, etc.). Inside an organization, the users are anyone involved in the in- vestment process, such as portfolio managers, analysts, associ- ates, and traders. www.acquisition-intl.com 2014 International Hedge Fund Awards Alpha Theory Fact File Company: Alpha Theory, LLC Email: [email protected] Web: www.alphatheory.com Address: USA offices: Charlotte, NC New York, NY Telephone: +1 (866) 482-2177 “Emotion is the bane of efficient decision making. Position sizing requires an explicit, sys- tematic, and repeatable process that incorporates the risk-reward of each position (as calculated by the firm’s analysts) and the constraints the portfolio manager con- siders critical. Only then can you calculate the position size the ‘unemo- tional you’ would take and compare it to your current position size”. “Size matters in investing – one inefficiently sized position can cost a fund millions of dollars and several poorly sized positions can put a fund out of business.” Portfolio Management Platform of the Year - USA 22