‘Trading the next data point'

When hedge funds began in the 1960s, 70s and early 80s in Wall Street firms, the vast majority of these firms were private and a huge portion of their income was derived from proprietary trading rooms where traders invested capital for the partners of the firm, said Michael Harron, managing partner at TMF Capital Management. The featured speaker at a lunchtime program sponsored by the Evening and Weekend MBA Program and the Professionals' Finance Club on January 15 at Gleacher Center, told more than 250 student described what he had witnessed since the birth of the industry.

According to Harron, the original hedge funds were started by the proprietary traders who created businesses for themselves, many of them trading the next data point. The value proposition of hedge funds is the transfer of market risk for business risk; these strategies reduce the volatility of the various markets, Harron said.

Hedge funds tend to have a volatility of about 6 to 7 percentabout a third that of the S&P, he noted. The return of good hedge funds will equal or exceed that of the S&P over a period of time, so they provide essentially the same or better return for less risk. They use absolute value strategies that generate returns even in down markets, Harron said. They are so highly diversified that they have the ability to profit not only from things going up but sideways and down as well. As for career opportunities in the business, Harron advised, Clearly the future lies in quantitative analysis and research.

 

Donna Eckert