Two decades of investment in quantitative research and development and in implementation technology has led CFM to the observation that a class of quantitative investment strategies are scalable, sustainable and less prone to decay than others.

This scalability has been, for the most part, not priced appropriately by the hedge fund industry, at least since the development of reliable, systematic implementation technologies, including:

  • Execution cost management
  • Systematic risk management
  • Operational controls
  • Network technology
  • Reliable, high quality data

For the sake of giving them a name, let us call these Behavioral Alternative Beta Strategies, as opposed to the Innovative Darwinian Alpha Strategies that form the backbone of our hedge fund business.

There are certain human behavioral traits that are, a priori, elemental, such as seeking validation through social acceptance by adhering to a social contract; in short, one achieves perceived security by “joining the herd”. Trend following is a glaring example of this type of behavior. Other strategies exhibit similar persistence driven by yet other behavioral dynamics: options, for instance, are generally overpriced, in part as a result of the human propensity for loss aversion.

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