Re: Investing - "Alpha With Asymmetry."

This piece is about the experiences that influenced and developed the investment philosophy that guided me throughout my career and continues to inform the way that I invest today.

This piece is about the experiences that influenced and developed the investment philosophy that guided me throughout my career and continues to inform the way that I invest today.

In short, the goal is: “Alpha With Asymmetry.”

During business school, I had a particularly impactful summer internship at Harvard Management Company (HMC), the investment manager of the Harvard Endowment, then run by Jack Meyer (who later founded Convexity Capital).

Prior to business school, my stint at J. Aron had exposed me to various Tactical/Market-Making trading strategies in Commodities and Currencies. HMC exposed me to a whole new world of Relative Value strategies like Convertible Arbitrage and Equity Long/Short as well as Event-Driven strategies like Merger Arbitrage. What was most impactful to me was sitting with lead portfolio manager Jon Jacobson (who later founded Highfields) and learning how he wove Asymmetry into his portfolio by making extensive use of Options to express both his Fundamental Idiosyncratic bets as well as his Macro Hedges.

I joined Canyon Partners after business school and initially found myself struggling to find a niche within a Fundamental Credit shop where I could make use of my Trading/Options background. After two years of crafting portfolio hedges (through the Asian Contagion of 1997-1998) and setting up numerous successful Convertible and Capital Structure Arbitrage and Merger Arbitrage trades, I settled upon a hybrid model that attempted to combine the best qualities of each of these asset classes.

"Alpha With Asymmetry" was an internal white paper that I wrote between 1998-1999 at Canyon to pitch what would become the investment platform that I ran at Canyon and subsequently ran at my firm Akanthos Capital Management. Its tenets still inform the way I invest and trade on my own as well as the way I construct an overall portfolio and make asset allocations for my family office.

This is NOT a solicitation for investment in a fund even though it reads like one — keep in mind that this paper was my internal marketing pitch to my bosses and mentors at the time, Josh Friedman and Mitch Julis. I am grateful that they gave me the runway to build a business and career from it.

I’ve mentioned this paper many times in interviews throughout the years, but this is first time I’ve shared it publicly, as I recently came upon it in my archives. Although I wrote this paper 25 years ago, I think many of the concepts I presented remain relevant today, especially since I presented this framework at the height of the Dot Com Bubble. Its subsequent resilience as an investment methodology during the subsequent Dot Com Bust makes it highly relevant in today’s frothy market climate.

I share my paper here and conclude afterwards with some current thoughts about it and how it still informs the way I think about asset allocation and trade construction today.

Without further ado…