Lifel Consulting Portfolio Allocation & Risk Management Services for Alternative Investments
“Expect the unexpected… often !”
Alternative Investment Challenges Alternative Investments are a unique asset class. They are complex dynamic products for which an investor needs to understand the underlying strategy and its risks, as well as the people behind it. When properly used, alternative investments can: • reduce the overall risk of a classic portfolio • hedge a specific risk or other asset classes • obtain returns which would be otherwise unachievable.
However, alternative investments pose serious challenges: • those inherent to the product itself: strategies are complex to understand; strategies which appear to be safe can hide high risk; outsized returns (positive or negative) due to leverage are hard to assess; limited liquidity • those inherent to the teams and parties involved: operational risks, counterparty risks, etc.
Alternative Investment Challenges Moreover, as the recent market crisis revealed, traditional methods of managing AI instruments and their risks don’t work.
Diversification has its limits: Diversification is not a surefire strategy during a market crises as all asset classes become highly correlated. Long/Short relationships breakdown when volatility rises: As volatility rises, hedge fund strategy correlations rise as most hedge funds are “short volatility”. The Long/Short relationships hedge funds rely on to make money breakdown. Normal distribution of returns assumed by traditional risk models is a fallacy: Investment returns do not follow a normal distribution: during the 2008 crisis, VIX index reached 90 whereas the previous historic all time high was 50. These extreme moves are not anticipated by traditional models, whereas they are frequent. Hidden liquidity risks came to the surface: Hedge funds facing huge redemptions and/or unable to unwind their positions raised gates to prevent investors from exiting the funds. Big players are not a guarantee of safety: Lehman, Merrill, Bear Stearns, AIG, etc. Counter party of hedge funds has become a major operational risk. When it’s too good to be true: Outright Fraud: Bernard Madoff, Allen Standford… From “Mark to Market” to “Mark to Make Believe”: Hedge funds using illiquid strategies with hard to price assets have become very creative with accounting rules: what’s the real value? Probably not much… Government intervention disruptive: Government intervention can lead to market structural breaks, i.e. restriction of short sales overnight significantly affected returns; “low risk strategies” such as Convertible Arbitrage became the worst performing strategy in 2008. Inverse & leveraged ETFs: they will inverse your portfolio… literally Improperly marketed, they lead many investors to feel “hedged” when they are not at all !
The Lifel Solution Leveraging 8 years of expertise in Alternative Investments with a cutting edge proprietary analysis and allocation system, Lifel identifies the real risks inherent to Alternative Investments and proposes portfolio allocations which mitigate these while catalyzing performance.
Even during a market crisis such as the one we saw in 2008, our clients were able to protect their assets and their returns.
Case Study: Pentium Fund Lifel began to work with Pentium Fund in 2003. By applying a unique approach to portfolio allocation and risk management to the firm, Lifel helped Pentium become a top player in the field. Lifel increased Pentium’s main FoF performance by 37% on an annual basis since 2003, without adding more risk to the portfolio, and helped launch 2 other products. 2009:
- Pentium Quantitative Fund is nominated for best multi-strategy FoF under $1b at HFMWeek European Performance Awards 2009 - Pentium Real Assets Master Fund ranked #1 YTD and #2 for May 2009 with Barclays HF - Pentium Quantitative Fund ranked #1 YTD and #3 for May 2009 with Barclays HF
- Performance of the Pentium funds of funds range from -3.6% to +19% for the year (HFR FoF Composite index -21.3%)
Expertise / Services Our services include the following, customized according to your needs: 1- Portfolio Management - assessment of the portfolio risk profile using non-linear methods - identification of the main drivers of risk and return in the portfolio - opportunity to rebalance the current portfolio - impact on the risk and return of adding/removing instruments to/from the portfolio - opportunity to add an overlay to hedge the global portfolio or identified risks
2- Hedge Fund analysis - performance forensics - analysis of the underlying strategies / risk assessment - comparison vs. peers and benchmarks
3- Monitoring & Reporting - detect style drift by a hedge fund manager and ensuing added risk - produce detailed quantitative reports on hedge funds or portfolio
4- Bespoke quantitative work - at the intersection of mathematics, finance and information technology, Lifel adapts to its clients needs.
Achievements Lifel seeks long term relationships with its clients:
Family Endowment Partners – Fund of Hedge Funds – Since 2007 • Provide quantitative risk expertise to the fund. • Issue risk monitoring reports on a monthly basis.
Dolomite Capital Management – Since 2006 • Fund of funds specialized in Emerging Markets - Chief Risk Officer
Zaragoza Family Office – Since 2003 • Reshaped the portfolio using Lifel’s proprietary system. The performance of the fund doubled without adding more risk.
Pentium Fund – Quantitative Fund of Hedge Funds – Since 2003 • Analyze existing and prospective managers. • Generate portfolio simulations to assess performance and risk of prospective portfolios. • Recommend portfolio allocations and rebalancing on a weekly basis. Æ Pentium Quantitative Fund is nominated for best multi-strategy FoF under $1b at HFMWeek European Performance Awards 2009 Æ Pentium Real Assets Master Fund ranked #1 YTD and #2 for May 2009 with Barclays HF Æ Pentium Quantitative Fund ranked #1 YTD and #3 for May 2009 with Barclays HF
Bulltick – 2002 • Automated European mutual funds trading pre-trade compliance check ensuring broker’s capacity to send error-free trades to the market, reducing its liability cash reserve. • Provided better trading conditions for clients increasing their average trade by 25% (avg.: $20mm).
David Lifchitz, Owner David Lifchitz possesses extensive quantitative expertise in risk management and systematic trading. Using his multi-disciplinary skill-set in financial markets, mathematics and technology, David has implemented an innovative approach to risk management to allow investors to build portfolios of hedge funds that show not only significantly lower risks than the underlying funds, but also higher returns than any of the constituent funds, while keeping risks within an acceptable range. His proprietary risk analysis has been utilized in investment strategies ranging from global multi-strategy fund of funds to niche players in the emerging markets space. David began to focus on leveraging technology solutions to optimize performance in the financial markets arena in 2002, as a Consultant to the Paris office of Bulltick, a U.S.-based broker. His achievements included creating equities scanners for arbitrage trading strategies, providing a new line of business and additional revenue to the broker. In addition, he automated mutual funds trading compliance checks, impacting Bulltick’s and its clients’ bottom line. While still in graduate school in 1996, David founded Oxydian, a start-up which developed a proprietary technology to automatically diagnose failures in information systems, targeted to financial institutions. For this venture, David secured funding of $3 million from venture capitalists and Oxydian was recognized by the French Ministry of Research as the year's "Most Innovative High-Tech Start-up" in 1999. David holds a Post-Graduate degree (D.E.S.S.) in Network and Systems Engineering from Versailles University along with two Master's, in Applied Mathematics and Information Technology, from top-ranked Dauphine University in Paris.
Contact For further information, please contact David Lifchitz: [email protected]
/ +1 (917) 363-0673