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Asymmetric Returns

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Asymmetric Returns

The Future of Active Asset Management


15 min read
10 take-aways
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What's inside?

A provocative reflection on the future of active money management.

Editorial Rating



  • Innovative
  • Well Structured
  • Concrete Examples


The main theme of this dense book is the future of the asset management industry. Alexander M. Ineichen claims that the investment business has undergone a paradigm shift, away from buy-and-hold and toward absolute-return investing. He explores the origins and implications of this shift in considerable detail and enjoyable prose. But, beware, this is not a book for beginners or generalists. Even close students of finance may find it difficult to follow the author's argument through his many detours and tangents (interesting as they are). Ineichen is an ardent fan of high-risk, high-leverage hedge fund investing, so his book will be controversial in the post-subprime-crisis atmosphere, where that kind of investing has fallen from grace. Ineichen quotes John Maynard Keynes as saying, “When circumstances change, I change my view. What do you do?” Published in 2007, the book references the equity market bubble of 1995 to 2000 as the most recent instance of large-scale market inefficiency, but getAbstract wonders whether the author would change his view after the much more consequential financial collapse of 2008.


Risk, Volatility and Asymmetric Returns

Michelangelo carved his David from a marble block that another sculptor had begun to work on, but then discarded. Most people thought the block was now worthless, but Michelangelo saw something in it: the figure of David. He only needed to free the figure from the stone around it. Similarly, positive “alpha” exists in the market. Talented managers know how to carve away the superfluous risk to liberate this alpha. Like sculptors, they need specialized tools to do so. For the most part, these are tools for managing risk. Risks, as opposed to returns, are manageable.

To reap returns, investors must take risks. However, not all risks are equal. Some risks are more likely to produce rewards than others. “Asymmetric returns” refers to investments whose upsides are greater than their downsides. Their odds of earning a profit are disproportionate to their odds of sustaining a loss. Only an active risk management approach can discover and reap the benefits of such opportunities. In contrast, buy-and-hold investors cannot realize asymmetric returns. They have exposure to both upside gains and downside risk.

Traditional investment...

About the Author

Alexander M. Ineichen, CFA, CAIA, is managing director and senior investment officer for the Alternative Investment Solutions team, a business within UBS Global Asset Management.

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