465 Davis Ct
San Francisco, CA 94111
Speaker: Andrew Weisman, Managing Partner of Windham Capital Management and Co-Chief Investment Officer for Windham Liquid Alternatives.
Topic: Forced Liquidations, Fire Sales, and The Cost of Illiquidity
Abstract: Institutional investors seeking diversification often build portfolios using collections of securities with widely varying characteristics. To facilitate diversification, investors rely on the “common currencies” of reported return, volatility, and correlation, and employ them as inputs to portfolio construction/ optimization models or processes. Investors using this approach are often drawn to investment opportunities that appear to exhibit diversifying properties because of their limited price discovery. Such opportunities tend to be relatively illiquid when compared to traditional investments—investors simply take for granted that they receive a “liquidity premium” that compensates them for the lack of liquidity. Illiquidity in such investments (like hedge funds, private equity or structured credit) is most often measured by serial correlation in the reported return series of the investment, because such autocorrelation is viewed as a sign of price smoothing caused by an inability to accurately price less liquid securities or investments. More sophisticated investors may adjust the return data by taking into consideration observed serial correlation in order to decode the true volatility of the portfolio; thereby correcting both the volatility and the risk adjusted performance of the investment. Such simple adjustments for serial correlation, however, fail to capture a major cost associated with illiquidity— that of forced liquidations and “fire sales”. This presentation examines an intuitive, rigorous method for pricing this cost.
Andrew Weisman’s slides will be published on this site. Original paper has been published in Q-Group at http://www.q-group.org/wp-content/uploads/2015/12/Weisman_paper.pdf
Speaker Bio: ANDREW B. WEISMAN is a Managing Partner of Windham Capital Management and Co-Chief Investment Officer for Windham Liquid Alternatives. Mr. Weisman has more than 25 years of experience as a portfolio manager of alternative investment strategies. Prior to joining the Investment Manager in 2016, Mr. Weisman was the Chief Investment Officer of Janus Capital’s Liquid Alternative Group from 2012 to 2016. Prior to joining Janus Capital, he was Chief Executive Officer or WR Managed Accounts, LLC from 2008 to 2012, and Managing Director and Chief Portfolio Manager for the Merrill Lynch Hedge Fund Development and Management Group from 2005 to 2008. Mr. Weisman has a Masters in International Affairs/International Business from Columbia University’s School of International and Public Affairs, and a BS in Philosophy/Economics from Columbia University and has completed all of the course work and comprehensive exams toward a PhD from Columbia University’s Graduate School of Business. In 2002 he was awarded the Bernstein Fabozzi/Jacobs Levy Award for outstanding article published in the Journal of Portfolio Management. In 2016 he was awarded the Roger F. Murray Prize by the Institute for Quantitative Research in Finance. He currently serves as President of the Society of Columbia Graduates.
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